KUALA LUMPUR: The state government maintains strong support for Sabah Development Bank (SDB) and assures the security and recoverability of the latter's RM5 billion in non-performing loans (NPLs).
According to Sabah finance minister Datuk Seri Masidi Manjun, the RM5 billion in NPLs are recoverable because they are mainly secured against land-based assets that are the subject of ongoing recovery efforts.
"I wish to reaffirm the state's support to the bank in times of need, particularly our commitment to ensure that the bond obligations and repayment are kept whole. The bank reflects the state's financial standing and has an important role in the development of the state," he said in a statement yesterday.
Masidi acknowledged that legacy issues have negatively affected SDB's financial position in recent years.
However, he pointed out that significant achievements have been made since the new board and management took over in the second half of 2023.
GLC loan exposure was reduced from RM2.2 billion in July 2023 to RM0.7 billion currently, and bond obligations decreased from RM5.0 billion to RM3.9 billion.
Masidi told the state assembly on Wednesday that SDB will report an extraordinary deficit for the fiscal year 2023–2024 (FY23–FY24), aligning with best practices and accounting rules.
He assured that the bank has the capital to meet its upcoming bond repayment commitments and has historically complied with its bond repayment obligations.
"I was made to understand that the bank has, after the announcement, proactively engaged with key investors, depositors, and other stakeholders. The general response is that there is full understanding and support for the bank to undertake this house cleaning, and they are reassured by the state's strong support for the bank's transformation plan," he said.
Masidi said that the Sabah Finance Ministry has advised other government-linked companies (GLCs) to deposit any surplus funds as fixed deposits with SDB.
He added that Sabah is also positioning SDB as the lead lender and manager for financing large investment projects in the state.
"Another important financial support is the conversion of the state's deposits of RM660 million to redeemable preference shares over the next few years to strengthen the bank's capitalisation," he noted.
Meanwhile, Masidi said that the new board has reported alleged wrongdoing to the Malaysian Anti-Corruption Commission (MACC).
The bank has also adopted industry practices and Bank Negara Malaysia guidelines and has commenced NPL recovery with an aggressive target of RM1 billion per year for the next three years.
According to Masidi, SDB plans to exit the Peninsular Malaysia market by then.
He noted that the bank is now guided by the state government's mandate to pursue economically and socially meaningful and environmentally responsible development projects in Sabah.
"RM1.5 billion in loan applications that did not fall within this mandate or did not meet the bank's new rigorous credit test have been rejected. On the other hand, RM616 million of loans in the focus areas of water, power, and infrastructure have been approved."