RATING DRIVERS
Supporting Factors
- Moderate market position in T&T’s real estate mortgage market, supported by TTMF’s crucial role in the implementation of GORTT’s national housing policy
- Comfortable capitalization, reflected in high capital adequacy and good capital coverage of total assets
- Continued good financial performance in 2020 despite a fall in profitability
Constraining Factors
- Asset quality adversely impacted by the COVID-19 pandemic
- Asset/liability mismatch increases exposure to potential liquidity risks given high reliance on debt financing
- Lack of geographic diversity in TTMF’s revenue and funding exposes the company to significant sovereign risk
Rating Sensitivity Factors
Factors that could, individually, or collectively lead to an improvement in the ratings and/or outlook include:
- An improvement in the credit rating of the sovereign over the next 12-15 months
- The advancement of the proposed merger over the next 12 months which will lower funding costs and introduce new products
- Successful completion of housing projects over the next 12 months which should grow TTMF’s subsidized mortgage portfolio
Factors that could, individually, or collectively lead to a lowering of the ratings and/or outlook include:
- A deterioration in the credit rating of the sovereign over the next 12-15 months
- A rise in the cost to income ratio to 55% or greater
- A sustained increase in interest rates by 100 basis points or greater over the next 12 months, resulting in increased debt funding costs
- A material reduction (50% or greater) in or complete withdrawal of subsidized funding from the GORTT
- NPLs/Gross loans greater than 8% for 2 consecutive years
COMPANY BACKGROUND
Trinidad and Tobago Mortgage Finance Company Limited (TTMF) was incorporated under the Companies Act of Trinidad and Tobago on December 3, 1965. Its shareholders are the Government of the Republic of Trinidad and Tobago (GORTT) and the National Insurance Board of Trinidad and Tobago (NIBTT), with shareholdings of 49% and 51% respectively. TTMF is not a licensed deposit-taking institution and relies primarily on bonds to fund its lending operations.
TTMF was formed to fulfil the GORTT’s mandate of providing affordable residential mortgage financing to low to middle-income households in Trinidad and Tobago (T&T). It is the lead vehicle for mortgage financing under the GORTT’s Affordable Housing Finance Programme (2% and 5% Mortgage Programme). It is also a key part of the State’s housing business model in which the Trinidad and Tobago Housing Development Corporation (HDC) constructs the houses, and TTMF provides the mortgage financing. Although the HDC refers potential homeowners to the TTMF, they can obtain financing from other institutions. TTMF widened its target market several years ago to include all persons interested in residential mortgage financing. As such, the company’s product range now includes subsidized and open market residential mortgage loans as well as home equity loans with tenors of up to 30 years at stable interest rates, currently ranging between 2% and 6% per annum[1].
In 2014, the GORTT approved a merger to create an institution conceptualized to leverage on synergies between TTMF and Home Mortgage Bank (HMB). In 2016, a Memorandum of Understanding (MOU) was signed between the TTMF and HMB, which allows both companies to derive benefits from a close corporate alliance while maintaining the integrity and independence of both companies. Under the terms of the MOU, HMB is required to develop appropriate products and markets for the sale of securitised mortgage products to provide consistent sources of low-cost long-term financing to TTMF, by way of an agreed programme of mortgage purchases. Following the completion of a cost benefit assessment earlier in 2021 by PricewaterhouseCoopers Advisory Services Limited (“PwC”) on the type of merger to be pursued, approval to commence the merger of both entities was granted by the Minister of Finance. The approved method for the merger is a Distribution in Specie, whereby all assets and liabilities of the liquidated HMB will be transferred to TTMF.
[1]eives a Government subsidy for its 2% and 5% mortgage rates, through which qualifying citizens can benefit from subsidized interest rates.
Analytical Contacts:
Jeffrey James
Tel: 1-868-627-8879 Ext. 236
E-mail: [email protected]
Anelia Oudit
Tel: 1-868-627-8879 Ext. 226
Mobile: 1-868-487-8364
E-mail: [email protected]
Website: www.caricris.com
Email: [email protected]
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