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

The rating reflects MARC Ratings’ assessment of very high governmental support to CGC based on CGC’s policy role in supporting micro, small and medium-sized enterprises (MSMEs) in the country, and Bank Negara Malaysia’s (BNM) majority ownership of CGC (78.6%). The rating also considers CGC’s strong capitalisation level.

CGC helps to facilitate MSMEs’ access to financing by providing credit guarantees on loans and financing extended to the latter by participating financial institutions (PFIs). While CGC’s lending has been subdued with net loans standing at RM15.3 billion as at end-June 2024 compared to RM15.5 billion in the previous corresponding period, the rating agency views the renewed focus on the MSME segment under the New Industrial Master Plan 2030 and the allocation of RM7.1 billion to MSMEs via BNM under Budget 2025 would be supportive of CGC’s growth prospects.

Of CGC’s key products, the portfolio guarantee scheme — under which risk is shared with PFIs on an agreed risk-sharing ratio — accounted for 83.7% of total guaranteed loans as at end-1H2024. The average risk-sharing ratio was 70:30 between CGC and PFIs. Accordingly, CGC’s loan portfolio carried a higher credit risk; however, its strong capital position, as reflected by a Basel II-equivalent capital adequacy ratio of 39.7% as at end-June 2024, provides a buffer against asset quality issues.

MARC Ratings notes that the ratio of guaranteed exposure to total shareholders’ funds remains manageable at 3.51x, well below CGC’s threshold of 6.0x. As at end-June 2024, gross non-performing loans/financing ratio increased moderately to 5.2%, from 4.5% as at end-2023, primarily due to the expiry of loan relief programmes, and ongoing challenges faced by some MSMEs in the post-pandemic environment.

In 1H2024, CGC’s total income declined by 4.6% y-o-y to RM248.5 million, mainly on lower investment income. Coupled with an increase in provisions for claims amounting to RM175.6 million (1H2023: RM133.4 million), CGC recorded a net loss of RM3.8 million (1H2023: profit of RM54.1 million). CGC’s liquidity profile remained stable, supported by strong cash and cash equivalents of RM735.6 million as at end-June 2024. Notably, nearly 65% of CGC’s investments comprised debt and sukuk securities, with approximately 90% rated AA and higher.