Sime Darby Property MD Datuk Jauhari Hamidi giving a brief explanation of the Quarza Residence at KL East
KUALA LUMPUR: Cagamas Bhd’s business prospects are expected to remain challenging given the matured operating environment, says RAM Ratings, which reaffirmed its credit ratings.
It pointed out on Thursday that most financial institutions are highly rated, not to mention the available liquidity in the domestic financial markets.
The national mortgage company's recent purchases have been driven by its purchase-with-recourse (PWR) scheme as the financial industry gears up towards full compliance with the prescribed liquidity ratios.
“In the absence of any significant purchases of higher-yielding purchase-without-recourse (PWOR) assets, Cagamas’ margins are expected to remain under pressure,” it pointed out.
In FY December 2016, the company’s net interest margin eased to 1.2% (FY December 2015: 1.4%).
RAM Ratings reaffirmed Cagamas’s global-, Asean- and national-scale corporate credit ratings, at a respective gA2/Stable/gP1, seaAAA/Stable/seaP1 and AAA/Stable/P1.
“We have also reaffirmed the company’s various issue ratings, as tabulated below.
“Concurrently, RAM has withdrawn the P1 rating on the company’s RM5bil Islamic CP programme following its maturity on Aug 19, 2017,” it said.
It said the ratings reflect Cagamas’ solid credit metrics, which are expected to remain robust despite its long-term plans to diversify into new areas and products.
“Given the company’s strategic position in the domestic capital markets, as a liquidity provider to the financial system and also as one of the largest issuers of corporate bonds and sukuk, we believe that government support will be readily extended in the event of any financial distress,” it said
As a liquidity provider to the mortgage sector, Cagamas purchases loan/financing assets from financial institutions, the Government of Malaysia and selected corporations on a PWR or purchase-without-recourse basis.
During the reviewed period, Cagamas' overall asset quality remained robust as 87% of its PWR exposure was to highly rated counterparties rated AA and above.
Its PWOR portfolio continued to exhibit a healthy performance, with a gross impaired-loan (GIL) ratio of 0.84% as at end-December 2016, below the Malaysian banking system’s 1.14% for residential property mortgages.
“The healthy showing is partly attributable to the non-discretionary direct salary deductions for the repayment of these mortgage assets.
“RAM notes that the diversification of Cagamas’ PWR portfolio into other sectors such as infrastructure and SME is still in the cards, but will likely take some time to materialise,” it said.
RAM pointed out Cagamas enjoys ready access to the capital markets given its quasi-government status; it is solely reliant on the wholesale market for funding.
“Nonetheless, the company is exposed to minimal liquidity and refinancing risks given its strict asset-liability management.
“To ensure more competitive pricing of its products, Cagamas ensures that its trade instruments remain liquid and has been increasing the tradability of its debt issues by reopening outstanding ones and including its debt securities in global indices.
“This has to date enabled Cagamas to improve its time to market, with more attractive pricing of its issuances,” it said.
Cagamas’s overall risk-weighted capital adequacy ratio of 24.1% as at end-December 2016 is deemed superior, mainly underscored by high-quality capital that includes common shares and retained earnings.
As at the same date, Cagamas’ common-equity tier-1 capital ratio stood at 22.3%.
“RAM notes that Cagamas’ long-term plans to explore regional opportunities and purchase new asset classes have yet to materialise, and are not expected to materially affect its capitalisation given the company’s prudent and conservative management practices,” it said.
Win a prize this Mother's Day by subscribing to our annual plan now! T&C applies.
