RAM Ratings assigns AA1 /P1 ratings to Sabah Development Bank’s proposed debt facilities, reaffirms existing ratings

Published on 15 Apr 2021.

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RAM Ratings has assigned AA1/Stable/P1 ratings to Sabah Development Bank Berhad’s (SDB or the Bank) proposed RM3 bil Commercial Papers (CP)/Medium-Term Notes (MTN) Programme. Concurrently, we have also reaffirmed the ratings of SDB’s existing debt instruments (Table 1). The ratings incorporate our expectation of extraordinary support from the Sabah state government (the State) in times of distress. SDB plays a strategic role in advancing Sabah’s socio-economic development and enjoys a strong relationship with the State. State backing has come in the form of sizeable deposit placements, business referrals and letters of support for the Bank’s debt facilities. Meanwhile, the board of SDB also includes the Permanent Secretary to the State’s Ministry of Finance.

Table 1: Ratings of SDB’s debt programmes


Rating action


Proposed RM3.0 bil CP/MTN Programme^



RM1.5 bil CP (2014/2021)/MTN Programme (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 RM3.0 bil at any time.

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


The Bank’s lending book grew 17% to RM7.4 bil in FY Dec 2020 (FY Dec 2019: +3%), mainly driven by financing extended for new developmental projects in Sabah. SDB has projected slower expansion for FY Dec 2021 as it maintains a circumspect stance against a backdrop of lingering uncertainties. 

Seen in an elevated gross impaired loan (GIL) ratio of 47.3% as at end-December 2020 (end-December 2019: 48.4%), SDB’s loan quality is deemed poor. Amid prevailing pandemic-induced economic stresses, the indicator is likely to remain under pressure in the near to medium term. The Bank’s low loan loss coverage (at 22.9%) could, for the most part, be ascribed to its largely well-secured credit exposures, although recoverability of collateral is subject to market conditions. Given a high level of GILs and thin GIL coverage, SDB’s capitalisation may be weighed down in a stressed scenario. Its Basel I tier-1 capital ratio was around 15.2% as at end-December 2020. In any case, we envisage extraordinary financial support from the Sabah government if required.

The Bank’s profitability is still highly sensitive to impairment charges, exacerbated by low GIL coverage. Pre-tax profit dropped 15% to RM126.9 mil in FY Dec 2020 (FY Dec 2019: RM149.0 mil) owing to heftier provisions. The Bank’s credit cost ratio soared to 188 bps (FY Dec 2019: 68 bps). Correspondingly, SDB’s return on risk-weighted assets reduced to 1.8% from 2.3% previously. 

In view of its limited deposit-taking ability, SDB relies heavily on wholesale borrowings to finance its lending operations. This continues to predispose the Bank to refinancing risk. We, however, note a shift in SDB’s funding composition towards longer-tenured debts in an effort to moderate this risk. Long-term borrowings made up more than half of the Bank’s outstanding liabilities as at end-December 2020 (five-year average: 38%).


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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