Islamic Mortgage Finance & Liquidity Facility Presented by : Datuk Chung Chee Leong President/Chief Executive Officer
Cagamas as Liquidity Provider
Cagamas at a Glance o Cagamas Berhad Entity Name o 100% by Cagamas Holdings Berhad, which is 20% owned by Central Bank of Malaysia (BNM and 80% by Shareholders commercial and investment banks o A3 Stable (Moody’s) o Credit Rating AAA/P1 Stable (RAM Rating Services Berhad) o AAA/MARC-1 (Malaysian Rating Corporation Berhad) Date of o 2 December 1986 Incorporation o Established by Bank Negara Malaysia to support the national agenda of increasing home ownership and promoting the development of Malaysia’s capital markets Objectives o Development and promotion of Islamic finance within Malaysia o Through the issuance of conventional and Islamic securities, Cagamas funds the purchase of housing loans and house financings through its Purchase With Recourse (PWR) and Purchase Without Recourse (PWOR) schemes o Based on this business model, Cagamas is able to provide liquidity to financial institutions at a competitive Business Model cost, encouraging them to provide additional housing loans and house financings to new applicants at an affordable price o The World Bank has regarded Cagamas Berhad as the largest and most successful liquidity facility in its publication entitled “Housing Finance Policy in Emerging Markets” in 2009
The Objective Catalyst for the Government’s and Central Bank’s initiatives for the economy and financial sector 4 key areas for Cagamas Promotion of home ownership/home accessibility and affordability in Malaysia Enhance and support in the stabilization of the financial sector in Malaysia Development of the Malaysian Capital Market Development of the Islamic Financial Sector
The Business Model Tools provided to Cagamas is primarily engaged in the financial institutions purchasing of loans and financings from Portfolio Hedging Management financial and non-financial institutions Liquidity Management under PWR and PWOR as well as guaranteeing housing loans and house financings under Mortgage Guarantee Capital Programme (MGP) schemes Management Risk Management PWOR PWR MGP
The Business Model Cagamas purchases loans and financing under 2 schemes – Purchase with Recourse and Purchase without Recourse Liquidity Model Securitisation Model Guarantee Model Mortgage Originators Purchase $ $ Purchase assets Guarantee Guarantee/ assets with Sales without Sales Wakalah Fee Mortgages recourse proceeds recourse proceeds Structure CAGAMAS CAGAMAS CAGAMAS SRP MBS $ Sells Cagamas Issues ABS Bond/Sukuk Bonds/Sukuk proceeds Investors Unfunded Investors Purchase with Recourse Programme Purchase without Recourse Mortgage Guarantee Programme / Skim Product (PWR) Programme / (PWOR) Rumah Pertamaku Composition of total assets: 73% Composition of total assets: 27% (My First Home Scheme)/ Youth Housing Scheme Net operating income FY2019: 20% Net operating income FY2019: 80% Conduit Capital Management Capital Management Liquidity Management for Risk Management Risk Management Hedging Portfolio Management Portfolio Management * Assets acquired under PWOR are potential securitisation asset at a future date Cagamas Berhad
The Impact of Cagamas Enhance Reducing maturity Funds at liquidity mismatch reasonable cost Enhance liquidity to Contribute to greater Providing FIs with funds at the financial sector financial stability by reasonable cost through including during times reducing the maturity its ability to generate high of liquidity crunch mismatch in banking investor demand system Enhancing the quality of Providing innovative sukuk Spurring development of the Malaysian capital to cater for the growth in Corporate Bonds/ Sukuk market from issuances of Shariah compliant market in Malaysia quality credit papers instrument in Malaysia Development of Issuances of Innovative Capital Market quality papers Sukuk
Cumulative Issuances Systemically important to domestic financial system underscored by its dual function as liquidity provider and as a leading issuer of bonds and sukuk Cagamas Group has issued papers worth MYR340 billion (USD85 billion) to the financial market and has successfully redeemed MYR302 billion (USD75 billion) with not even a single technical default as at March 2020 (MYR billion) (MYR billion) 30 400 Asian financial crisis US sub-prime 350 / global 25 financial crisis * 300 * 20 * 250 * Less than MYR 150 million Sukuk issuances by Cagamas 15 200 150 * 10 * 100 5 50 0 0 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Annual Sukuk Issuances Annual Bonds Issuances Cumulative Issuances 8
The Key Success Factors Support Given by Solid Financial Standing & Strong Management . Regulators Shareholding Team • Profitable going concern • Experienced and dedicated Implicit and explicit support • Strong shareholders equity of given: professional team • Result oriented and RM3.9 billion (USD1 billion) • High RWCR of over 30% • Implicit: Through Bank Negara performance driven culture • Strong shareholders in the • Robust risk management and Malaysia’s shareholding • Explicit: Through incentives by form of Central Bank and FIs corporate governance government and regulators at structure the initial stage Resulting in a strong credit rating by rating agencies Resulting in (1) increased Investors’ confidence and (2) Resulting in (1) direct access to money market (2) direct contact innovative products and with investors solutions
Cagamas in Islamic Financing
Cagamas’ Role In Islamic Finance Liquidity provider for Islamic financial institutions in Malaysia Facilitate development of Islamic capital market in Malaysia – frequent issuer of sukuk in MYR and SGD market Contribution to Islamic derivative market via involvement in Islamic Profit Rate Swap (IPRS) and Islamic Cross Currency Swaps (ICCS). Enhancement of liquidity in local Sukuk market by reopening exercise of existing sukuk. Promotion of efficient and robust price discovery platform for sukuk market through introduction of Cagamas sukuk Bloomberg and Reuters Pricing Page. Contribution towards continuous innovation in sukuk structures increasing Islamic market depth and breadth.
Cagamas’ Role In Islamic Finance Innovative & • Developed many “first” Islamic structures of its kind utilising various Islamic concepts and principles Award- Winning Team • Islamic structures have won numerous local, regional and international awards Cagamas Ca amas is the he firs rst t • AAA rated by both local rating agencies, RAM Ratings (RAM) and Malaysian Quality Rating Corporation (MARC) sec econdar dary y mortg tgag age e Sukuk Issuer • No default experience in our many years of operations institution tution in t the e • Globally-accepted Shariah compliant structures Shariah • Legal documents in accordance to Shariah principles and best practices wor orld d with h proven en and nd Compliant • Approved by the relevant Shariah Advisory Council of Bank Negara Malaysia Structures award-wi winnin nning g Is Islami amic c and/or the Securities Commission • Distinct from conventional operations finance ce capab pabil iliti ities es. . Shariah • Separation of funds, activities, and accounting books & records to prevent co- mingling of funds. Compliant Operations & • Islamic investments are limited to highly rated Islamic investments, primarily Infrastructure Government, or Government guaranteed papers • Systems & Infrastructure designed to cater for Islamic products
Islamic House Financing Ecosystem in Malaysia Secondary Financial Primary Financial Housing Market Market Market Securities Real Estate & Bank Negara Malaysian Institute of Housing Developers’ Commission of Malaysia Estate Agents Malaysia Association (BNM) (MIEA ) (SC) (REHDA ) Representative Representative Regulate Regulate Body Body Real Estate Agents / Islamic Financial Investors Housing Developers House Owners Institutions Financing (Sukukholders) (New Houses) (Pre-Owned Houses) (Project/Bridging) Types of Sukuk under Sukuk Issuance Proceeds Cagamas Sukuk Programmes • Mudarabah • Musharakah Sell Houses • Murabahah • Ijarah • Wakalah Bil Istithmar Islamic Financial Institutions /House Sell Assets Financing House Buyers Financing Providers (End-Financing) (Liquidity Provider)
Evolution & Types of Islamic House Financing in Malaysia 1983 2003 2008 2010 2012 2017 Bai Bithaman Ajil Bai Bithaman Ajil Musyarakah Ijarah Muntahiah Bi Murabahah Tawarruq Ijarah Muntahiah Bi (Deferred Payment Mutanaqisah Al-Tamlik Al-Tamlik (Deferred Payment (Cost-plus Sale via Sale) Sale) (Diminishing (Lease Ending With Tawarruq) (Lease Ending With With Ibra’ (Rebate) Partnership) Ownership) Ownership) under mechanism 100% Rent-To-Own Financing Plan ▪ Fixed Rate ▪ Floating Rate With ▪ Floating Rate ▪ Fixed Rate ▪ Fixed Rate ▪ Floating Rate Ceiling (With/Without ▪ Floating Rate ▪ Floating Rate With Ceiling) (With/Without Ceiling Ceiling) Industry Wide
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