KOTA KINABALU: Sabah Development Bank Berhad (SDBank), put under the microscope in the state assembly recently over its financial management and practices, says it has been evaluated as having "a strong capability to meet its financial obligations".

The state-owned bank said the assessment was made by RAM Rating Services Berhad (RAM Ratings), a leading credit rating agency in South-East Asia.

“RAM Ratings has on Wednesday (July 16) reaffirmed the AA1/Stable/P1 ratings of SDBank’s debt instruments,” it said in a statement.

“The AA1 rating indicates that SDBank has a strong capability to meet its financial obligations, and is resilient against adverse changes in circumstances, economic conditions and/or operating environments.

“The ‘Stable’ outlook reflects RAM Ratings' expectation that the long-term rating will be unchanged over the immediate term,” SDBank added.

It also said its commercial papers' P1 rating, the highest short-term rating assigned by RAM, indicated a strong capability to meet short-term financial obligations.

In its statement, RAM Ratings said it affirmed the ratings on the expectation that the Sabah government will readily extend support if required.

“RAM Ratings is cognisant of (SDBank’s) very weak standalone credit profile, accentuated by the significant underprovisioning of legacy credit exposures, thin capital buffers and previously lax impaired loan classification.

“However, the ratings continue to be anchored by Sabah state's very strong likelihood of support for the bank and its debt borrowings – a commitment firmly articulated to RAM and SDBank’s investors.

“The state’s financial capacity is underpinned by its robust fiscal position and cash reserves, estimated at over RM6bil as at end-December 2023,” RAM Ratings added.

State Finance Minister Datuk Seri Masidi Manjun had highlighted at the state assembly sitting last week that SDBank recorded losses of over RM5bil in non-performing loans (NPLs) that were hidden through decades of creative accounting.

The RM5bil in NPLs, Masidi said, reflected 75% of the total of RM6.6bil in loans released by the bank as of May this year.

Apart from carrying out creative accounting by providing fresh loans to borrowers to cover up its non-performing loans, he added there had been a total management “meltdown” in checks and balances in approving loans to unqualified companies.

He said, however, the state government was fully behind the bank’s bid to recover the RM5bil.

Masidi said the NPLs were "secured and recoverable" after the new management took over the bank.

RAM Ratings added: “Since taking office, the new management team has summarily strengthened governance and credit underwriting while intensifying recovery efforts for distressed assets.”

https://www.thestar.com.my/news/nation/2024/07/17/sdbank-gets-039stable039-rating-amid-questions-over-past-financial-management