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Sabah Development Bank's RM5b bad loans secure and recoverable amid MACC probe - MoF Sabah

KUALA LUMPUR: Sabah's Ministry of Finance (MoF) has thrown the state's weight behind Sabah Development Bank, stating that the bank's RM5 billion bad loans, or non-performing loans (NPL), are secure and recoverable.

The statement by the ministry came after Sabah Finance Minister Datuk Seri Masidi Manjun on Wednesday told the state assembly that the development bank's new board and management lodged a report with the Malaysian Anti-Corruption Commission (MACC) in April over alleged abuse in loan issuance after it found RM5 billion in NPLs in its books.

He told the assembly the development bank will announce an unprecedented loss for the financial year 2023 to 2024, per best practices and accounting standards.

In a statement issued today, Sabah's MoF clarified that the RM5.0 billion NPLs are recoverable as they are mainly secured against land-based assets and under active recovery action.

"I wish to reaffirm the state's support to the bank in times of need, particularly on 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,"Masidi said in a statement today.

He told the state assembly on Wednesday that the development bank has always fulfilled its bond repayment obligations in the past and has sufficient capital to honour its coming 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 towards the bank's transformation plan," he said.

Masidi said the state will support the development bank not only by enouraging state government-linked companies (GLC) to repay loans but also get them to place excess cash as fixed deposits with the bank.

He said Sabah is also positioning the bank as the lead lender/manager to provide local content in financing large investment projects coming into Sabah.

"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.

Masidi said with the new board in, 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 from RM5.0 billion to RM3.9 billion.

The bank has adopted industry practices and Bank Negara Malaysia guidelines and started the recovery of NPLs with an aggressive target of RM1 billion per year for the next three years.

Masidi said the developmentbank expects to exit the Peninsular Malaysia market, where the bank approved some RM8 billion in loans between 2003 and 2018, by then.

About 95 per cent of the loans were for the property development sector in Kuala Lumpur, Selangor and Johor.

Masidi added that the bank is now firmly guided by the mandate from the state government to pursue economically and socially meaningful, and environmentally responsible development projects in Sabah only.

"RM1.5 billion 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," MoF Sabah said.

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