RAM Ratings assigns AA1/P1 ratings to Sabah Development Bank’s proposed debt facilities, with stable outlook

RAM Ratings assigns AA1/P1 ratings to Sabah Development Bank’s proposed debt facilities, with stable outlook

Published on 04 November 2013

RAM Ratings has assigned AA1/Stable/P1 ratings to Sabah Development Bank Berhad’s (SDB or the Bank) proposed CP Programme of up to RM1.5 billion and proposed MTN Programme of up to RM1.5 billion subject to a combined aggregate nominal value of up to RM1.5 billion. Concurrently, we have also reaffirmed the ratings of SDB’s existing debt instruments (refer to table below).

Instrument	Rating action	Ratings
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 value of the aggregate outstanding CP and MTN for each instrument cannot exceed RM1 billion at  any time.

The ratings reflect the support that SDB enjoys from the State Government of Sabah (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. We highlight that the State Government has been supportive of SDB’s operations, with large deposit placements and the provision of letters of support for the Bank’s debt facilities. 
  
As at end-December 2012, SDB’s gross impaired-loan (GIL) ratio had risen to 13.2% because some weakened performing loans had been classified as impaired. At the same time, the Bank’s GIL coverage ratio only came up to around 70%, with a sizeable portion of loans that are 6 months past due but have not been classified as impaired given that they are either secured by collateral or are being restructured. On balance, these are moderated by SDB’s adequate tier-1 RWCAR of 17.7% as at end-August 2013. All said, we believe that the State Government’s support will be readily available, if needed.

For the first 8 months of FY Dec 2013, the Bank recorded a pre-tax profit of RM77.4 million while its annualised returns on equity and assets came up to 15.2% and 2.7%, respectively. 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 has 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 both a public-policy institution and a commercial entity.

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