Published on 05 Dec 2017.
RAM Ratings has reaffirmed the AA1/Stable/P1 ratings of Sabah Development Bank Berhad’s (SDB or the Bank) debt programmes. The reaffirmation is anchored by our expectation that the Sabah State Government (Sabah) will readily extend extraordinary support if needed, given the Bank’s developmental role in the State. SDB enjoys a close relationship with Sabah, which has been supporting the Bank’s operations with sizeable deposit placements, business referrals and letters of support for SDB’s debt securities.
Instrument | Rating action | Rating(s) |
Commercial Papers (CP) Programme of up to RM1.5 billion in nominal value (2014/2021) and Medium-Term Notes | Reaffirmed | AA1/Stable/P1 |
CP Programme of up to RM1.0 billion in nominal value (2013/2020) and MTN Programme of up to RM1.0 billion in | Reaffirmed | AA1/Stable/P1 |
CP Programme of up to RM3.0 billion (2012/2019) and MTN Programme of up to RM3.0 billion (2011/2036)^ | Reaffirmed | AA1/Stable/P1 |
RM1.0 billion MTN Programme (2008/2028) | Reaffirmed | AA1/Stable |
#The aggregate outstanding CP and MTN cannot exceed RM1.5 billion at any time. | ||
The Bank’s loan book expanded only 3% in fiscal 2016, in line with its cautious stance and emphasis on funding state-related projects. As a policy bank, SDB’s developmental mandate inherently exposes it to higher-risk credits. The Bank’s gross impaired-loan (GIL) ratio (on a 6-months-past-due basis) stood at 10.0% as at end-December 2016. As SDB is not governed by Bank Negara Malaysia, it is not required to adhere to the regulator’s loan impairment classification guidelines that entail loans that are 3 months in arrears to be tagged as impaired. Applying this measure to SDB’s loan book from a conservative standpoint would see the Bank’s GIL ratio rise to a higher 31%. Similarly, its GIL coverage ratio would slip from 95% to only 31%. That said, SDB’s lending is generally secured by collateral. The Bank’s Basel I tier-1 capital ratio stood at 16.7% as at end-December 2016.
Elsewhere, SDB remains heavily dependent on short-term wholesale funding for its lending activities due to its limited deposit-taking ability, thus rendering SDB susceptible to rollover and refinancing risks.
Analytical contact
Loh Kit Yoong
(603) 7628 1031
kityoong@ram.com.my
Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my
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