THE Sabah Finance Ministry (MOF) has expressed strong support for the Sabah Development Bank, emphasising that the bank’s RM5 bil in non-performing loans (NPLs) are secure and recoverable. This announcement follows revelations by Sabah Finance Minister Datuk Seri Masidi Manjun regarding alleged abuses in loan issuance.
Speaking at the state assembly, Masidi disclosed that the development bank’s new board and management had lodged a report with the Malaysian Anti-Corruption Commission (MACC) in April, uncovering RM5 bil in NPLs.
He stated that the bank would report a significant loss for the financial year 2023 to 2024 in adherence to best practices and accounting standards.
In a statement issued today, the MOF assured that the NPLs, primarily secured by land-based assets are 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.”
Moreover, Masidi assured the assembly that the development bank has historically met its bond repayment obligations and possesses sufficient capital to meet future commitments.
“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.
Moreover, the state government plans to bolster the bank by encouraging government-linked companies (GLCs) to repay loans and deposit excess funds as fixed deposits.
“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,” noted Masidi.
Since the new board took over in the latter half of 2023, GLC loan exposure has decreased from RM2.2 bil in July 2023 to RM0.7 bil, and bond obligations have reduced from RM5.0 bil to RM3.9 bil.
The bank has adopted industry practices and Bank Negara Malaysia (BNM) guidelines, setting an aggressive target to recover RM1 bil in NPLs annually over the next three years.
The development bank plans to exit the Peninsular Malaysia market by then, where it approved approximately RM8 bil in loans between 2003 and 2018, primarily for property development in Kuala Lumpur, Selangor, and Johor.
The bank will now focus exclusively on projects within Sabah that are economically, socially, and environmentally responsible.
The MOF stated that RM1.5 bil in loan applications outside this mandate were rejected, while RM616 mil in loans for water, power, and infrastructure projects were approved.
“RM1.5 bil 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 mil of loans in the focus areas of water, power and infrastructure have been approved.” – July 12, 2024
Main photo credit: The Star
