Dato Ooi, Mr Choy, Ladies and Gentlemen,
Good evening,
It is my great pleasure to be here today to join Dato Ooi in
welcoming senior members of Malaysia's banking community to the
launch of the Mortgage Guarantee Programme by Cagamas HKMC Berhad,
the new joint venture company formed by Cagamas and the Hong Kong
Mortgage Corporation.
Last August, I came to Kuala Lumpur to witness the signing of
the Memorandum of Understanding between Cagamas and the HKMC for
exploring the potential in developing a mortgage guarantee business
in Malaysia. Today, with the passage of only ten months, I am
delighted to join you to celebrate the incorporation of the joint
venture company and the launch of its ground-breaking Mortgage
Guarantee Programme. The speed of turning the concept into a major
business initiative testifies to the dedication and cooperative
spirit of the joint venture partners. The Programme will provide
guarantee on a portfolio basis for both conventional and
shariah-compliant mortgage loans originated by financial
institutions in Malaysia. The guarantee will cover the portion of
the mortgage loan from 80% and up to 95% of the value of the
property.
The Mortgage Guarantee Programme aims to offer an effective tool
for financial institutions in Malaysia to better manage the credit
risk of their mortgage lending business. The US sub-prime
experience has clearly demonstrated that without a proper structure
and framework for managing the additional risks, a rapid expansion
of mortgage financing could be detrimental to the health of banks
and financial stability in general.
Based on the Hong Kong experience, a successful mortgage
guarantee programme needs to be firmly anchored on three
pre-conditions. First, the guarantee product should bring real
benefits to participating banks and potential homeowners without
compromising the incentive for banks to maintain prudent
underwriting standards. Secondly, there should be a conducive
regulatory framework that provides incentive for banks to make good
use of the guarantee for risk management and mitigation purposes.
Thirdly, the provider of the guarantee should be of undoubted
credit strength and possesses in-depth local market knowledge.
The programme that Cagamas HKMC Berhad introduces today
encompasses all three elements.
From the perspective of the banks, the benefits of the Programme
are three-fold. First, it provides the opportunity for banks to
increase mortgage lending by raising the loan-to-value ratio, but
without incurring additional credit risk. Secondly, unlike
alternatives that involve securitisation, the mortgage loans can be
retained on the banks' books whilst transferring the more risky
credit of the top portion of the mortgage to the guarantor.
Thirdly, utilisation of the guarantee arrangement will lead to a
more efficient use of capital permissible under the Basle
framework.
From the perspective of potential homebuyers, they can realise
their dream of home ownership earlier as the significant uplift of
the loan-to-value (LTV) ratio of mortgages, made possible by the
guarantee, may lower the down payment to as low as 5% of the value
of the property.
For the regulatory authorities, the Programme helps to contain
banks' credit exposure to mortgage lending by transferring the
risks associated with the high LTV portion outside the banking
sector. The regulatory regime in fact plays a crucial role in
encouraging usage of the guarantee by banks through reduction in
capital charge in recognition of the reduced risk. The treatment
determined by the Bank Negara Malaysia will significantly reduce
the risk weighting of mortgage pools guaranteed under the
Programme.
The success of this business model has been borne out by Hong
Kong's experience. Since the introduction of the Mortgage Insurance
Programme (MIP) by the HKMC in 1999, banks have originated HK$ 95
billion or around MYR 40 billion of insured mortgage loans due to
the lifting of the maximum LTV ratio from 70% to 95%. The portion
above 70% LTV ratio amounted to HK$21 billion, or close to MYR 9
billion. This has enabled some 50,000 households to advance their
goal of attaining homeownership. The careful design of the
Programme has also helped to maintain the excellent credit quality
of the insured mortgage pool. The delinquency rate is currently
below 0.05%. This is made possible by a host of factors - proper
credit risk assessment, prudent underwriting practices, a
well-tested pricing model, sound reinsurance arrangement and
careful monitoring of loan performance.
On the credit strength and local knowledge of the guarantor, one
cannot find a better service provider other than our joint venture
company - Cagamas HKMC Berhad. Cagamas has the strong backing of
Bank Negara Malaysia and is one of the longest established national
mortgage corporations in the region. Its in-depth understanding of
the Malaysian housing and mortgage markets provides a solid basis
to build the Mortgage Guarantee Programme launched today. On the
other hand, the HKMC possesses solid experience in running one of
the most successful mortgage insurance arrangements in the region
and is one of the very few Asian financial institutions with a
triple-A rating. The combined strength of Cagamas and the HKMC will
enable the joint venture company to open up a new frontier in
mortgage financing for the Malaysian banking community.
I would like to offer my warmest appreciation to all those who
have contributed to the establishment of the joint venture, and I
look forward to the success of the Mortgage Guarantee Programme for
many years to come.
Thank you.
