Published on 12 November 2014
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). The reaffirmation of the
ratings reflects mainly the very high likelihood of extraordinary
support from the Sabah Government (State Government, whose debt facility
is rated AAA/Stable/P1 by RAM), given its developmental role in the
State. RAM also considers SDB’s standalone credit fundamentals in the
ratings.
Instrument
|
Rating action
|
Rating
|
CP Programme of up to RM1.5 billion in nominal value (2014/2021) and MTN
Programme of up to RM1.5 billion in nominal value (2013/2033)# |
Reaffirmed
|
AA1/Stable/P1
|
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 RM1,000 million
MTN Programme (2008/2028)* |
Reaffirmed
|
AA1/Stable/P1
|
#The aggregate outstanding CP and MTN cannot exceed RM1.5 billion at any time. *The aggregate outstanding CP and MTN cannot exceed RM1 billion at any time.
| ||
As a development financial institution (DFI) that is
fully owned by the State Government, SDB plays a strategic role in
supporting the former’s developmental goals. Apart from being the
State’s financial intermediary, the Bank also manages various
state-related investments such as water and oil & gas (O&G)
assets, as directed by the State. The State has been supportive of SDB’s
operations, with sizeable deposit placements, dividend reinvestments
and the provision of letters of support for the Bank’s debt facilities.
SDB’s role as a DFI inherently exposes it to higher-risk credits. As at end-December 2013, SDB’s gross impaired-loan (GIL) ratio had eased to 10.7% (as at end-December 2012: 13.2%), mainly due to a robust 26% y-o-y loan growth. Its credit cost ratio, on the other hand, remained elevated at 1.2% in FY Dec 2013 (FY Dec 2012: 2.6%). The Bank’s loan portfolio continues to exhibit a relatively high degree of concentration risk, with its top 5 loans making up about 35% of gross loans. Given its risk profile, the Bank’s capitalisation is viewed as adequate, with its tier-1 capital ratio at 15.6% as at end-December 2013. All said, we expect the State to provide extraordinary support to the Bank, if required.
SDB’s role as a DFI inherently exposes it to higher-risk credits. As at end-December 2013, SDB’s gross impaired-loan (GIL) ratio had eased to 10.7% (as at end-December 2012: 13.2%), mainly due to a robust 26% y-o-y loan growth. Its credit cost ratio, on the other hand, remained elevated at 1.2% in FY Dec 2013 (FY Dec 2012: 2.6%). The Bank’s loan portfolio continues to exhibit a relatively high degree of concentration risk, with its top 5 loans making up about 35% of gross loans. Given its risk profile, the Bank’s capitalisation is viewed as adequate, with its tier-1 capital ratio at 15.6% as at end-December 2013. All said, we expect the State to provide extraordinary support to the Bank, if required.
In FY Dec 2013, the Bank’s pre-tax profit declined to
RM128.4 million (FY Dec 2012: RM177.4 million), mainly a result of
lower dividends from subsidiaries. Adjusting for dividends and
additional provisions last year, the Bank’s profitability would remain
broadly unchanged y-o-y at about RM100 million. For the same period, the
Bank’s return on equity and return on assets came up to 16.5% and 2.7%,
respectively.
SDB’s funding profile, however, remains heavily
dependent on wholesale borrowings given its limited deposit-taking
ability, which exposes it to greater refinancing risk, particularly in
times of tight liquidity. Notably, a significant amount of deposits are
from the State Government, underlining the strong support of its parent.
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