RAM Ratings reaffirms Sabah Development Bank’s AA1 issue ratings

Published on 10 Nov 2020.

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RAM Ratings has reaffirmed the AA1/Stable/P1 ratings of Sabah Development Bank Berhad’s (SDB or the Bank) debt programmes, premised on our expectation of extraordinary support from the Sabah state government (the State) in times of need. SDB plays a strategic role in advancing Sabah’s socio-economic development and enjoys a strong relationship with the State. Evidence of past support from the State includes sizeable deposit placements, business referrals and letters of support for the Bank’s debt facilities.


Rating action


RM1.5 bil Commercial Papers (CP) Programme (2014/2021)/ Medium-Term Notes (MTN) Programme of up to RM1.5 bil in nominal value (2013/2033)^



RM1.0 bil MTN Programme (2012/2032)



RM3.0 bil MTN Programme (2011/2036)



RM1.0 bil MTN Programme (2008/2028)



^ The aggregate outstanding CP and MTN cannot exceed RM1.5 bil at any time.


SDB’s lending portfolio grew 3% to RM6.4 bil in FY Dec 2019 and an incremental RM539.8 mil in 1Q FY Dec 2020, fuelled by loans extended to the construction as well as agriculture, mining and quarrying sectors. Most of the loans were to finance new developmental projects in Sabah. However, amid current highly uncertain operating conditions, the Bank expects loan growth for the rest of 2020 to stay tepid.

SDB’s asset quality is still very weak, its gross impaired loan (GIL) ratio standing at 44.5% as at end-March 2020, albeit having reduced from 54.0% as at end-December 2018. Given the present economic crisis, asset quality is unlikely to improve in the near term. The Bank’s loan loss coverage remained low at 22.4% as at end-March 2020, primarily owing to a largely well-secured loan book, although recoverability of collateral is subject to market conditions. Juxtaposed against a large proportion of GILs and thin coverage, the Bank’s capital position may come under pressure in a stressed scenario; its tier-1 capital ratio was 15.4% as at end-March 2020.  Nevertheless, we believe the State will readily extend financial support if required.

Pre-tax profit rose 34% to RM149.0 mil in FY Dec 2019, translating into a return on risk-weighted assets of 2.3% (FY Dec 2018: 1.7%). The improvement was mainly attributable to a smaller impairment expense incurred during the year. That said, the Bank’s earnings profile is still highly susceptible to provisioning risk, which is exacerbated by low loan loss coverage. 

SDB relies heavily on wholesale borrowings to finance its lending operations given its limited deposit-taking ability. This continues to expose the Bank to refinancing risk. In this regard, the Bank has shifted its funding mix towards longer-term borrowings in a bid to mitigate the risk. As at end-March 2020, these borrowings made up an increased 63% of the total outstanding (end-December 2018: 26%). 


Analytical contact
Chow Kah Mun
(603) 3385 2501

Media contact
Padthma Subbiah
(603) 3385 2577


The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.

RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.

Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.

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