RAM Ratings reaffirms AA1/P1 ratings of Sabah Development Bank’s debt facilities

Published on 26 August 2013

RAM Ratings has reaffirmed the ratings of Sabah Development Bank Berhad’s (“SDB” or “the Bank”) outstanding debt instruments at AA1/Stable/P1 (refer to table below).

Instrument	Rating action	Rating
CP Programme of up to RM1 billion in nominal value (2013/2020)  and MTN Programme of up to RM1 billion in Nominal Value  (2012/2032)*	Reaffirmed	AA1/Stable/P1
CP Programme of up to RM1 billion (2012/2019) and MTN  Programme of up to RM1 billion (2011/2031)*	Reaffirmed	AA1/Stable/P1
RM500 million CP Programme (2008/2015) and RM1 billion MTN  Programme (2008/2028)*	Reaffirmed	AA1/Stable/P1
*The aggregate outstanding CP and MTN cannot exceed RM1 billion at any time.

The ratings reflect the support that SDB enjoys from the State Government of Sabah (“State Government”, whose debt facility is rated AAA/Stable/P1 by RAM). As a development financial institution that is fully owned by the State Government, SDB plays a strategic role in supporting the former’s developmental goals. The Bank also owns various state-related projects, as directed by the State Government. We note that the State Government has been supportive of SDB’s operations, with sizeable deposit placements and the provision of letters of support for the Bank’s debt facilities.  

Given SDB’s role, some of its loans may entail higher credit risks, although they are adequately secured. As at end-December 2012, SDB’s gross impaired-loan (“GIL”) ratio stood at 13.2% (as at end-December 2011: 10.5%). That said, there is still a sizeable portion of loans that are 6 months past due but not classified as impaired given that they are either secured by collaterals or under restructuring. These are, however, balanced by its sound tier-1 RWCAR of 18.3% as at end-December 2012. All said, we believe that the State Government will readily lend its support if needed.

In FY Dec 2012, the Bank’s pre-tax profit almost doubled to RM177.4 million (FY Dec 2011: RM91.4 million), driven by generous dividends from its subsidiaries to utilise its tax credits. This was despite the additional provisioning arising from classifying some of its weakened performing loans as impaired. RAM notes that the Bank would still record a healthy pre-tax profit after adjusting for these items.

Meanwhile, SDB’s funding profile remains heavily dependent on wholesale borrowings given its limited deposit-taking ability. A large portion of the Bank’s loans have been extended to State Government-related agencies or projects, with the rest directed to the private sector. Going forward, we will continue monitoring the balance between SDB’s role as a public-policy institution and a commercial entity.

Media contact
Lim Chern Yit
(603) 7628 1035
chernyit@ram.com.my