MARC Ratings has affirmed its financial institution rating of AAA on Credit Guarantee Corporation Malaysia Berhad (CGC) with a stable outlook.

The affirmed rating considers the government’s 78.6% ownership of CGC through Bank Negara Malaysia as well as CGC’s key public policy role focused on facilitating access to financing for micro, small and medium-sized enterprises (MSMEs). MARC Ratings views the propensity for government support as very high. The rating also considers CGC’s strong capitalisation level.

CGC provides credit guarantees on loans and financing extended to MSMEs through participating financial institutions (PFIs). After strong growth between 2019 and 2022 where CGC’s net loans guaranteed increased from RM9.4 billion to RM15.1 billion — bolstered by the various government-initiated financing schemes introduced during the pandemic period — growth has slowed in 2023 as the schemes gradually end. Nevertheless, the rating agency opines that the continued strong support from the government in developing MSMEs, which is exemplified by a supportive Budget 2024 allocation of RM44 billion for the sector, will bode well for CGC.

The Portfolio Guarantee (PG) scheme remains CGC’s key product, accounting for 92.7% of its guaranteed loans in 1H2023. Under the PG scheme, CGC provides guarantees on loans extended by PFIs at various coverage levels (average of 70%); part of the credit risk is transferred to the PFIs.

CGC’s gross non-performing loans/financing ratio increased moderately to 4.8% as at end-June 2023, from 4.1% as at end-2022, following the expiry of loan relief programmes and ongoing corporate stress, particularly among MSMEs. While CGC is exposed to high-risk MSME lending given its mandate to support the sector, this risk is mitigated by CGC’s strong capital level which stood at 39.7% as at end-1H2023 (on a comparable Basel II basis). In this regard, the risk-sharing with PFIs under the PG scheme, which makes up the bulk of CGC’s guarantee portfolio, is also viewed positively.

In 1H2023, total income rose by 59.0% y-o-y to RM260.4 million, mainly due to higher investment income of RM122.9 million during the period. CGC’s net profit improved to RM54.1 million in 1H2023 (1H2022: -RM62.6 million) on higher income and lower provision of RM133.4 million during the period (1H2022: RM150.7 million). Meanwhile, its liquidity profile remained stable, supported by strong cash balances and term deposits. As of end-1H2023, debt and sukuk securities constituted around 61.4% of CGC’s total investments, down slightly from 66.4% in 2022. Within the portfolio, bonds and sukuk rated AA and above continue to form the bulk of the investments at around 86.4%.