KUALA LUMPUR (July 12): Sabah Development Bank’s (SDB) non-performing loans totalling RM5 billion are “secured and recoverable”, according to Sabah Finance Minister Datuk Seri Masidi Manjun.

The delinquent loans are mainly secured against “land-based assets” that are under active recovery action, Masidi said in a statement on Friday. The Sabah government also reaffirmed its support for the state-owned bank to ensure bond obligations and repayment are met, he said.

“The bank reflects the state’s financial standing and has an important role in the development of the state,” he said.

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The statement follows news of the problematic loans. Masidi had also informed the Sabah State Assembly on Wednesday that the SDB will announce an unprecedented loss for FY2023-2024 based on best practices and accounting standards.

The ministry blamed “legacy issues” which have negatively affected the bank’s financial position over the past years, and said that a new board and management have been put in place. The new team has also reported alleged wrongdoing to the Malaysian Anti-Corruption Commission.

Sabah’s finance ministry has also called on other government-linked companies to place excess cash as fixed deposits in SDB in a bid to shore up the bank’s balance sheet, Masidi said.

“We are also positioning SDB as the lead lender/manager to provide local content in financing large investment projects coming into Sabah,” he said. Sabah is also converting the state’s deposits of RM660 million to redeemable preference shares over the next few years to lift the bank’s capitalisation, he added.

The new management, which came on board in the second half of 2023, has reduced loan exposure to government-linked companies to RM0.7 billion currently from RM2.2 billion in July 2023, and trimmed its bond obligations to RM3.9 billion from RM5.0 billion.

The bank had also began to recover the non-performing loans with an aggressive target of RM1 billion per year for the next three years, and exit the Peninsular Malaysia market by then.

“The state once again makes clear that it fully supports SDB and the new leadership and that the bank will be turned around and become a development bank that the state and the people can be proud of,” the ministry stressed.

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