Friday, Jul 17, 2020
MARC has affirmed its insurer financial strength (IFS) rating of AAA and counterparty credit ratings of AAA/MARC-1 on Danajamin Nasional Berhad (Danajamin). Concurrently, the rating agency affirmed the ratings of AAAIS and AA+IS on the Senior and Subordinated Sukuk Murabahah of up to RM2.0 billion under Danajamin’s Sukuk Murabahah programme. The outlook on all ratings is stable.
The IFS rating affirmation reflects Danajamin’s status as a government-owned financial guarantee insurer (FGI), its strong capitalisation and healthy liquidity position. The rating continues to incorporate MARC’s view of perceived strong government support to Danajamin as a key factor in notching up its rating to AAA from its standalone rating.
Danajamin has continued to face challenges to grow its guaranteed portfolio over the past few years. At the same time, the weakening economic environment, exacerbated by the COVID-19 pandemic, raises concerns over a potential increase in the credit risk of its guarantee portfolio. In 2019, the FGI experienced its first crystallisation of a guarantee, which was on an issuer in the oil and gas (O&G) sector and had led to the recognition of RM80.4 million worth of claim liabilities. This resulted in a significant fall in Danajamin’s profitability, with its net profit registering RM3.2 million (2018: RM119.2 million). Over the near term, profitability will be under pressure given the moderating guarantee portfolio, and the sharp cuts in the overnight policy rate (OPR) that will weigh on investment yields. MARC notes that Danajamin will earn fee income for administering the RM50 billion PRIHATIN guarantee scheme set up by the government.
Danajamin remains well capitalised as reflected by its capital adequacy ratio of over 400%, significantly higher than the minimum regulatory requirement of 130%. Its net leverage ratio stood at 2.20x, well below the maximum leverage of 7.5x while liquidity has remained strong. Its investment portfolio mainly comprises investments in short-term money market deposits and low-risk assets. These investments stood at 80.4% of total investments as at end-2019.
The IFS rating affirmation reflects Danajamin’s status as a government-owned financial guarantee insurer (FGI), its strong capitalisation and healthy liquidity position. The rating continues to incorporate MARC’s view of perceived strong government support to Danajamin as a key factor in notching up its rating to AAA from its standalone rating.
Danajamin has continued to face challenges to grow its guaranteed portfolio over the past few years. At the same time, the weakening economic environment, exacerbated by the COVID-19 pandemic, raises concerns over a potential increase in the credit risk of its guarantee portfolio. In 2019, the FGI experienced its first crystallisation of a guarantee, which was on an issuer in the oil and gas (O&G) sector and had led to the recognition of RM80.4 million worth of claim liabilities. This resulted in a significant fall in Danajamin’s profitability, with its net profit registering RM3.2 million (2018: RM119.2 million). Over the near term, profitability will be under pressure given the moderating guarantee portfolio, and the sharp cuts in the overnight policy rate (OPR) that will weigh on investment yields. MARC notes that Danajamin will earn fee income for administering the RM50 billion PRIHATIN guarantee scheme set up by the government.
Danajamin remains well capitalised as reflected by its capital adequacy ratio of over 400%, significantly higher than the minimum regulatory requirement of 130%. Its net leverage ratio stood at 2.20x, well below the maximum leverage of 7.5x while liquidity has remained strong. Its investment portfolio mainly comprises investments in short-term money market deposits and low-risk assets. These investments stood at 80.4% of total investments as at end-2019.
Contacts:
Douglas De Alwis, +603-2717 2965/ douglas@marc.com.my;
Mohd Izazee Ismail, +603-2717 2947/ izazee@marc.com.my
Douglas De Alwis, +603-2717 2965/ douglas@marc.com.my;
Mohd Izazee Ismail, +603-2717 2947/ izazee@marc.com.my