KUCHING: RAM Ratings has reaffirmed the ratings of Sabah Development Bank Berhad’s (SDB) outstanding debt programmes at AA 1 /Stable/P1. The reaffirmation is anchored by the firm’s anticipation of firm support for the bank from the Sabah state government given its developmental role in the State.
RAM in a statement yesterday said SDB has completed an internal restructuring exercise which entailed a de-merger and transfer of its non-banking businesses to various newly incorporated companies held under Sabah Development Bgd, a diversified holding company wholly owned by the Sabah state government.
“The exercise minimises risks arising from non-banking activities especially the Bank’s O&G operations,” it said. “That said, the bank may still face credit risks associated with related-party lending, which accounted for 18 per cent of total lending as at end-December 2015.
“As a policy bank, SDB may be exposed to higher-risk credits. Given uncertain economic conditions, the bank will focus instead on state-related financing. As at end-December 2015, healthy recoveries and a large write-off contributed to an improved, albeit still high, gross impaired-loan ratio of 7.7 per cent.”
RAM observed that the bank’s loan-loss coverage stood at 110.1 per cent as at end-December 2015, and would be substantially lower if loans three months past due, not classified as impaired — which accounted for 31 per cent of total lending as at the same date — were taken into account.
Tier-1 capital ratio stood at 15.6 per cent as at the same date. Notably, as SDB is not regulated by Bank Negara Malaysia, its provisioning and impairment policies are not comparable with banking industry norms.
SDB relies heavily on wholesale funding in view of its limited deposit-taking ability. As at end-December 2015, wholesale borrowings mostly in the form of short-tenured debt securities of up to three years, made up 67 per cent of interest-bearing funds.
“This renders the bank highly vulnerable during periods of tight liquidity,” it said.
“On balance, about 73 per cent of SDB’s gross loans have a maturity period of 3 years or less. Furthermore, SDB’s close relationship with the Sabah State Government provides some assurance.”