SDB on its Path to Recover Bad Loans

State-owned Sabah Development Bank (SDB) is expected to declare an unprecedented loss for FYE 2023-2024, largely, because of its RM5 billion bad loans from legacy years. However, the Ministry of Finance (MoF) said that the RM5 billion Non-Performing Loans (NPLs) are secured and recoverable.

The NPLs are secured by land-based assets and the loans are now under active recovery protocols. In addition to legal and recovery actions, the Bank’s capitalisation position will be further enhanced through the conversion of the State’s Deposits of RM660 million to Redeemable Preference Shares over the next few years.

MoF said that SDB has always fulfilled its bond repayment obligations and that it has sufficient capital to honour its bond repayment obligations. MOF has directed all GLCs to place excess cash in their coffers into Fixed Deposits with SDB to continue supporting the Bank as the lead lender to provide local content in financing large investment projects within Sabah.

The Bank’s GLC loan exposure was reduced from RM2.2 billion in July 2023 to RM0.7 billion in 2024, and bond obligations reduction from RM5.0 billion to RM3.9 billion during the same period. Datuk Seri Masidi Manjun, State Minister of Finance, said that the Bank has proactively engaged with key investors, depositors and other stakeholders on the Bank’s transformation plan which includes implementation of strict governance; reporting to the Malaysian Anti-Corruption Commission (MACC) of alleged past and present wrongdoings; adopting industry practices in accordance with Bank Negara Malaysia (BNM) guidelines; and recovery of NPLs at RM1 billion recovery per year for the next three years.

The Bank has shifted its focus in terms of financing economically and socially meaningful and environmentally viable development projects within Sabah only. As a result, a total of RM1.5 billion in loan applications that did not fall within the framework and other criteria has been rejected; in contrast to a total of RM616 million of loans which has been approved in the focus areas of Water, Power and Infrastructure.