KOTA KINABALU: The Sabah government is fully behind Sabah Development Bank's (SDBank) bid to recover RM5bil in non-performing loans (NPL), says Datuk Seri Masidi Manjun.

The state Finance Minister said the NPLs were "secured and recoverable" after the new management took over the state-owned bank where previous managements had been accused of covering up NPLs with "creative accounting".

He clarified that the RM5bil NPLs were not losses and were recoverable as the loans were mainly secured against land-based assets that were now under active recovery action.

"Achievements have been recorded since the new board and management came on board in the second half of 2023.

"GLC loan exposure was reduced from RM2.2bil in July 2023 to RM0.7bil currently, and bond obligations from RM5bil to RM3.9bil," he said on Friday (July 12) in clearing the air over debts at the state-owned bank.

At the just concluded Sabah assembly sitting, Masidi said that there was a total management meltdown at the state-owned bank that led to RM5bil in NPLs chalked up from 2013 to 2018 and it was anticipated to post unprecedented losses for 2023 and 2024.

The bank had previously posted an average RM500mil in profits over the last six years.

“I wish to reaffirm the state’s support for SDBank 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 Sabah,” Masidi said, adding that the bank has put in place best practices and accounting standards since the new management took over.

Masidi noted that SDBank has always fulfilled its bond repayment obligations in the past and that the bank has sufficient capital to honour its coming bond repayment obligations.

“I was made to understand that the bank has, after the announcement (revelation in assembly), 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.

“Sabah's Finance Ministry has also issued letters to other GLCs to place excess cash as fixed deposits with SDBank," he said.

Masidi said that they were also positioning SDBank as the lead lender 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 RM660mil to Redeemable Preference Shares over the next few years to strengthen the bank’s capitalisation,” said Masidi.

Masidi reassured the public that the new board was firmly in position to overcome the negative legacy issues.

The new team has implemented strict governance and reported alleged wrongdoing to MACC with a target to recover NPL with an aggressive target of RM1bil per year for the next three years.

He said that the bank expects to exit Peninsular Malaysia where 75% of the loans granted by the bank to companies turned into NPLs.

"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 and Sabah only."

He said RM1.5bil worth of loan applications that did not fall within this mandate or did not meet SDBank’s new rigorous credit test have been rejected, adding that SDBank approved RM616mil in loans in the focus areas of water, power and infrastructure.

At the assembly, Masidi said that the previous management had been posting profits over the last six years when in fact, it had been issuing fresh loans to cover up NPLs.

https://www.thestar.com.my/news/nation/2024/07/12/sdbank039s-rm5bil-in-npls-039secured-and-recoverable039-says-masidi