- Statutory Reserve and Liquidity
Requirement Savings
Funds obtained by the financial institutions from the sale of housing
loans and Islamic house financing debts to Cagamas are exempted from the
statutory reserve and liquidity requirements. This concession has
the effect of reducing the cost of funds obtained from Cagamas.
However, funds obtained by the financial institutions from the sale
of industrial property loans and hire purchase and leasing debts
are exempted from liquidity requirement but half of the sale proceeds
will be included in the eligible liabilities for the computation
of the statutory reserve requirement.
- Amount Taken off from Balance
Sheet
The amount of housing loans sold to Cagamas under purchase
on without recourse basis can be taken off from the seller's
balance sheet, and as such, excluded for the purpose of
computing the risk weighted capital adequacy ratio.
- Ready Access to Liquidity
As Cagamas stands ready to buy loans and debts at the published
Cagamas Rates, the primary lenders have a ready access to
liquidity as long as they have the eligible assets to sell
to the Company.
- Increased Profits
By selling their long-term loans and Islamic house financing
debts to Cagamas, the
primary lenders can increase their profits by utilising
the funds thus obtained to grant further housing loans or
other loans.
- Reduce Maturity Mismatch
Cagamas provides the primary lenders access to medium and
long-term funds which match the tenure of their long-term
assets more closely than their traditional source of funds,
i.e. deposits which are primarily of less than 1 year
tenure.
- Source of Medium and Long-Term
Funds
Cagamas' high credit standing allows it to borrow large
sums of medium and long-term funds in the capital market
at a reasonably low cost. This cost advantage is passed
on to the primary lenders in the form of competitive Cagamas
Rates.
- Reduced Exposure to Interest
Rate Risks
With the availability of the Floating Rate, the Convertible
Rate and the Fixed Rate facilities, the primary lenders
are given additional flexibility and instruments to manage
their interest rate risks. By selling their loans and debts
to Cagamas under the Fixed Rate facility, for example, the
selling institution would have a hedge against any fixed
rate assets including housing loans, that they may have.
Similarly, the selling institutions would have a hedge against
the fixed rate Islamic house financing debts by selling
such debts under the Islamic house financing debts purchase
facility.
- Diversification of Funding
Base
The purchase facilities offered by Cagamas provide the primary
lenders with an avenue to diversify their funding base.
Fixed rate funds obtained from Cagamas vary for minimum periods
of 1 or 3 years, as the case may be, depending on the pricing
mechanism selected by the primary lenders. These relatively
long-term Cagamas funds could act as a bedrock in the funding
base of the primary lenders whose other funds are mainly of a
much shorter term and can be unstable, being subject to
withdrawal without notice or at short notice by depositors
or lenders.
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