[RAM] RAM Ratings assigns AAA/Stable rating to Cagamas' RM80 billion Islamic and Conventional MTN Programmes, affirms existing ratings

RAM Ratings has assigned an AAA/Stable rating to Cagamas Berhad’s (Cagamas or the Company) RM80 billion Islamic and Conventional Medium-Term Note (MTN) Programmes. Concurrently, we have affirmed the Company’s existing corporate credit and issue ratings as shown below.



The rating actions reflect Cagamas’ robust credit metrics, underscored by prudent and conservative business practices. This is despite its new five-year strategic plans/efforts (2024/2028) that may see the Company increasing its risk appetite to future-proof its business and be relevant to the market while still fulfilling its homeownership agenda. As Malaysia’s national mortgage corporation, Cagamas remains strategically positioned within the domestic financial system as a liquidity provider. It is also one of the largest domestic issuers of corporate bonds and sukuk. Based on RAM’s rating methodology for government-linked entities, the ratings factor in a high likelihood of government support in the event of financial distress.

Cagamas primarily acquires loans/financing assets from financial institutions, the Government of Malaysia and selected corporations on a purchase with recourse (PWR) or purchase without recourse (PWOR) basis. In FY Dec 2023, Cagamas’ PWR purchases reached another annual record high since inception, climbing 6.1% y-o-y to RM20.5 billion (FY Dec 2022: RM19.3 bil). The strong demand was mainly driven by a competitive pricing strategy in pursuit of growth. Nearly all the purchased receivables are mortgages. The Company also managed to purchase RM51.8 mil of receivables under its PWOR scheme in the same year. For 1H fiscal 2024, Cagamas bought RM4.5 bil worth of receivables via the PWR scheme. 

Overall, Cagamas’ asset quality is still robust in view of the significant proportion of highly rated counterparties for its PWR portfolio and minimal impairment losses from the PWOR portfolio. Its net interest margin, however, narrowed y-o-y by approximately 20 basis points to 0.6% for FY Dec 2023, largely due to more competitive pricing. As the PWR portfolio is expected to remain the Company’s main earnings source and the contribution from newer products like its Capital Management Solution and Reverse Mortgage is still small, earnings will stay under pressure unless the higher yielding PWOR portfolio is meaningfully replenished. As at end-June 2024, both total capital and common equity tier-1 ratios remained superior despite easing to a respective 34.1% and 33.7% owing to a larger loan/financing base. These levels are expected to be adequate to support the Company’s purchases and new business plans. 

Moderating the ratings is the challenging business environment in which Cagamas operates, given a limited customer base and the banking system’s healthy capital and liquidity buffers. While some financial institutions will still utilise Cagamas schemes to meet liquidity requirements as its PWR scheme remains an easy and convenient option, the Company is challenged to make its product more cost-competitive given the narrow gap between Cagamas’ funding costs and highly rated banks. As it is solely dependent on the wholesale market for funding, Cagamas’ competitiveness depends on the pricing of its debt securities. That said, the Company enjoys ready access to domestic capital markets because of its quasi-government status. Liquidity and refinancing risks are seen to be minimal in view of the Company’s prudent asset-liability management. 


Analytical contacts
Lim Chern Yit
(603) 3385 2528
chernyit@ram.com.my

Liew Kar Ling
(603) 3385 2550
karling@ram.com.my 

Media contact
Sakinah Arifin
(603) 3385 2500
sakinah@ram.com.my