Published on 10 Oct 2018.
RAM Ratings has reaffirmed the AA1/Stable/P1 ratings of Sabah Development Bank Berhad's (SDB or the Bank) debt programmes. The reaffirmation reflects our expectation that extraordinary support from the Sabah State Government (the State) will remain forthcoming in times of need, as the Bank continues to play a strategic role in advancing the state government's developmental agenda. SDB enjoys a close relationship with the State, which has backed the Bank's operations with sizeable deposits, business referrals and letters of support for the former's debt facilities.
| Instrument | Rating action | Rating(s) |
| Commercial Papers (CP) Programme of up to RM1.5 billion in nominal value (2014/2021) and Medium-Term Notes (MTN) Programme of up to RM1.5 billion in nominal value (2013/2033)# | 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 nominal value (2012/2032)* | 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 aggregate outstanding CP and MTN cannot exceed RM1.0 billion at any time. ^The aggregate outstanding CP and MTN cannot exceed RM3.0 billion at any time. | ||
SDB's loan book grew 4.2% y-o-y to RM6.1 billion as at end-December 2017, mainly driven by the construction and real estate sector. The Bank projects slower growth of circa 3% in 2018 amid economic uncertainties – in particular the ongoing review of major state development projects, with key growth sectors closely mirroring the current state government's near-term focus.
Given its policy role, SDB's lending activities naturally entails higher credit risks. The Bank reported a lower gross impaired loan (GIL) ratio of 9.2% as at end-March 2018, albeit still weaker than peers' in view of the Bank's less stringent impaired loan classification (loans that are more than six months in arrears). Applying the 'three months past due' measure to SDB's loan book would see its GIL ratio standing at a higher 34.1% as at end-March 2018, while loan-loss reserve coverage would be 27.4% versus 101.8% as at the same date. While the Bank's tier-1 capital ratio of close to 18% as at end-March 2018 partially mitigates provisioning risks, its loss absorption buffers may come under pressure in a stressed scenario. That said, we believe that the State will readily extend financial support to SDB if required.
SDB clocked in a pre-tax profit of RM177.6 million in fiscal 2017, which would have been RM205.3 million (+22% y-o-y on an adjusted basis) if not for a one-off expense relating to an ongoing court dispute on the assignment of proceeds deemed to be held in trust by the Bank. Its profitability continued to be supported by a broad net interest margin (NIM) that compares favourably against that of peers; the Bank's NIM came in at 3.8% in fiscal 2017. Separately, the Bank remains largely dependent on wholesale borrowings to fund its operations due to its limited deposit-taking ability, which exposes it 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
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.