Moody’s affirms Cagamas’ A3 ratings; outlook stable


KUALA LUMPUR: Moody’s Investors Service has affirmed Cagamas Bhd’s A3 long-term local and foreign currency issuer ratings.

In a statement on Wednesday, the rating agency also affirmed the National Mortgage Corporation of Malaysia’s Baseline Credit Assessment (BCA) of baa1.

“The outlook on Cagamas remains stable, reflecting Moody’s expectation that the company will receive extraordinary support from the Government of Malaysia (A3 stable) in times of need, and that Cagamas’ asset quality will remain robust over the next 12 to 18 months, ” it said.

Moody’s also affirmed Cagamas Global P.L.C.’s and Cagamas Global Sukuk Bhd’s long-term foreign currency senior unsecured medium-term note programme ratings of (P)A3, as well as the former’s long-term foreign currency senior unsecured rating of A3.

Moody’s said Cagamas’ A3 long-term issuer ratings reflect its expectation that the company’s asset quality and capital will remain robust, and that its liquidity will remain healthy. The ratings also incorporate the company’s modest profitability because of its focus on low-risk, low-return assets.

Cagamas’ A3 ratings are one notch higher than the company’s baa1 BCA, reflecting the high likelihood of support from the Malaysian government in times of need.

The support uplift reflects the company’s strong links with Bank Negara Malaysia and its policy role as the country’s secondary mortgage corporation.

“The asset quality of Cagamas’ loans will remain strong because of their low-risk nature, ” it said.

As of December 2020, 71.3% of the company’s outstanding loans were purchased with recourse to domestic financial institutions, which generally have strong creditworthiness, while the remaining loans without recourse comprised mortgages mainly owed by civil servants with stable incomes.

Moody’s said Cagamas’ capital will also remain strong on a risk-adjusted basis, in line with the trend in asset quality.

The company’s Common Equity Tier 1 increased to 43.6% as of December 2020 from 29.3% a year ago, driven by an improvement in its asset quality and a contraction in its gross loans amid ample liquidity in the domestic banking system.

Cagamas’ after-tax return on average assets remained modest at 0.6% in 2020, unchanged from 2019.

As a non-depository institution, Cagamas relies heavily on confidence-sensitive bonds for funding, and liquid assets accounted for only 7.7% of its total assets as of December 2020.

Moody’s pointed out the company’s well-matched asset-liability maturity and strong access to debt capital markets because of its affiliation with the central bank mitigate its liquidity risks.

Cagamas reported total assets of RM36.20bil (US$9bil) as of December 2020.

Cagamas Global P.L.C. and Cagamas Global Sukuk Bhd are fundraising vehicles that are wholly-owned by Cagamas.

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