NATIONAL mortgage corporation Cagamas Bhd has provided over RM240bil in liquidity to the banking sector for on-lending to the mortgage market since its establishment in 1986.
According to president and chief executive officer Steven Choy, Cagamas stands ready to purchase housing loans from financial institutions that meet its eligibility criteria.
“We will continue to provide mortgage lenders with liquidity and capital management solutions.
“We expect our business to grow in line with the growth of the banking and property sectors as we continue to play our role as a secondary mortgage institution,” he says.
Cagamas plays its role in growing the property loans market by purchasing mortgage loans from financial institutions, thus providing liquidity and/or releasing capital for the financial institutions to on-lend to the property loan market.
This enables financial institutions to increase their profits by utilising the funds obtained to grant further housing loans or other loans.
Cagamas funds its purchases of loans and debts primarily through the issuance of Cagamas debt securities.
Financial institutions have a ready access to liquidity as long as they have the eligible assets to sell to the company.
Cagamas also allows financial institutions to tap the capital market, rather than through its deposit base, for long-term funding requirements, with an element of hedging.
“In most instances, we are able to provide an element of cost savings which can be passed on to homebuyers,” Choy says.
This will provide homebuyers accessible and affordable mortgage financing.
Choy views the local property loan market as a significant one, accounting for some 27% of total loans in the banking system.
“It is also highly competitive.
“We expect the property loans market to grow with an increasing population – from 28 billion in 2009 to almost 30 billion by 2015 – and the expected doubling of per capita income from US$6,760 to US$12,139 over the next three to five years,” he says.
Choy says based on Bank Negara statistics, the quality of property loans have improved in tandem with the non-perfoming loan ratio which stands at 1.3% as at December 2009 compared with 9% at the height of the 1997/98 financial crisis.
“We believe this is a result of prudent lending by the financial institutions combined with efforts by Bank Negara to improve risk management across the banking industry,” he says.
Choy sees access to affordable financing for mortgages and affordable quality properties as important ingredients to boost the property market further.
“Financial Institutions and developers need to continue to work closely to offer attractive and affordable financing packages to homebuyers,” he says.
Choy adds that the Government has implemented several initiatives to promote the property market such as stamp duty exemptions for selected properties, access to funds in the Employees Provident Fund for mortgage repayment and real-property gains tax exemptions, among others.
In addition, Cagamas’ mortgage guarantee programme can provide accessibility to affordable financing for homebuyers, particularly to first-time homebuyers who have just entered the workforce.
“These homebuyers tend to have repayment capabilities but not the savings required for a downpayment for a property.
“For this segment of homebuyers, the mortgage guarantee programme can give them access to higher margin of financing without putting pressure on the banking system to lower the loan-to-value ratio,” he explains.
On the other hand, for homebuyers with savings for deposit, the programme will allow them to upgrade their property, he adds.
“In both instances, it can add volume and value to the property market,” Choy says.
Cagamas has also evolved and diversified its business model from that of a national mortgage corporation seeking to aid Malaysians with affordable housing into a leader in securitisation.
The Cagamas model is well regarded by the World Bank as a successful secondary mortgage liquidity facility.
Cagamas is the leading issuer of AAA debt securities as well as one of the top sukuk issuers in the world. Since its incorporation, Cagamas has cumulatively issued RM245.13bil of conventional and Islamic debt securities.
Cagamas’ debt securities continue to be assigned the highest ratings of AAA and P1 by RAM Rating Services Bhd and AAA/AAAID and MARC-1/MARC-1ID by Malaysian Rating Corp Bhd, denoting its strong credit quality.
By The Star
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