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RAM Ratings affirms Sabah Development Bank
Published on 04 Jun 2025.
RAM Ratings has affirmed the AA1/Stable/P1 ratings of Sabah Development Bank Berhad’s (SDB or the Bank) debt instruments (Table 1).
The ratings are underpinned by our expectation of ‘almost certain’ extraordinary financial support from the Sabah state government (the State), given SDB’s strategic role in advancing Sabah’s development objectives and the State’s strong track record of support. Our view is further reinforced by the State’s public affirmation of support in July 2024 and recent actions to restore SDB’s financial stability. We view Sabah’s state implicit strength as ‘superior’, with its financial capacity bolstered by a healthy fiscal position and cash reserves, estimated to remain above RM6 bil.
Under an ongoing state-initiated three-year transformation plan (2024-2026), which places SDB under the purview of the Chief Minister, the State of Sabah, with the Sabah Ministry of Finance having direct supervision of the Bank, the majority of the Bank’s board and senior management were replaced and a dedicated loan recovery team established. Following a kitchen-sinking exercise in FY Dec 2023 – which resulted in a pre-tax loss of RM880 mil – the State committed to converting RM660 mil of its deposits in SDB into redeemable preference shares (RPS) over five years. The Bank also received RM90 mil in equity injections over the past two years, with RM650 mil in deposits earmarked to offset overdue state-related loans and advances.
SDB is already showing nascent signs of improved recoveries on its impaired loans, which stood at 78% of total loans as of end-2024. Significant reduction of these long-standing impairments will however require some time. The Bank recorded an unaudited pre-tax loss of RM81 mil in FY Dec 2024 (FY Dec 2023: RM880 mil), mainly owing to additional impairment charges. Provisions over the last two years were substantial to address under-provisioning of impaired loans in prior years.
SDB’s tier-1 capital ratio as at end-2024 stayed weak at 7.7% (end-2023: 7.6%) but is projected to improve to 10.3% on gradual RPS conversion and an additional RM50 mil capital injection expected in 2025. Total capital ratio, meanwhile, was higher at 19.6% as at end-2024 (end-2023: 7.9%) after considering the RM660 mil subordinated deposits as tier-2 capital. The RPS conversion, to be carried out over several years, is subject to annual state cabinet approval.
As at end-May 2025, SDB had RM1.9 bil in bond obligations due over the next 12 months. Liquidity is expected to be supported by loan recoveries and deposit placements from other state agencies. The Bank’s close ties with the Sabah government also provide assurance of timely financial backing if needed.
A wholly state-owned development financial institution, SDB is mandated to fund socially and economically meaningful and environmentally responsible development projects in Sabah, predominantly in the water, power and infrastructure sectors. In 2024, the Bank approved RM1.3 bil in new loans for such projects, with several other proposals in the pipeline. Disbursements, however, may take time, depending on the progress of the projects.
Analytical contacts
Lee Yee Von
(603) 2708 8217
yeevon@ram.com.my
Sophia Lee
(603) 2708 8211
sophia@ram.com.my
Media contact
Sakinah Arifin
(603) 2708 8212
sakinah@ram.com.my
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.
Published by RAM Rating Services Berhad
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