TROUBLED state-owned Sabah Development Bank Bhd (SDB) has declared a pre-tax loss of RM878 million for the financial year 2023, with a net loss of RM684 million, marking the first time the bank’s books reflected its true financial situation.
The losses were attributed to the uncovering of years of “evergreening” loans, where new loans were issued by the bank to cover non-performing loans (NPLs), masking the bank’s underlying problems.
This “creative accounting” allowed the bank to report profits totaling RM580 million over the past six years.
“Had proper accounting and appropriate provisions followed from the outset, the bank would have reported successive significant annual losses in previous financial years,” the bank said.
SDB plays a crucial role in Sabah’s economic development that includes supporting the state’s government-linked firms.
The bank, however, courted controversy this year after it was discovered that loans were given to peninsula-based companies.
The bank had been called the last resort for companies that failed to secure loans from other financial institutions.
Currently, 75%, or approximately RM5 billion, of SDB’s RM6.6 billion loan portfolio has been classified as non-performing.
The true scale of the bank’s losses emerged after the finalisation of audited accounts and adjustments, including the reallocation of expected credit losses for 2023.
SDB anticipated announcing a pre-tax loss of approximately RM100 million for the financial year 2024.
A new board and management team was installed last year to restructure the bank with the goal of turning its finances around within three years.
“Significant progress has been made in reducing the NPLs to RM5 billion this year, which are secured against land and commercial assets,” the bank stated.
SDB has recovered RM1.9 billion in legacy loan repayments from government-linked companies and reduced its bond repayment obligations from RM5 billion in July 2023 to RM3.3 billion by July 2024.
The bank is now focussing on a rigorous recovery plan, aiming to recover RM1 billion in bad debts annually over the next three years.
The Sabah Finance Ministry converted RM660 million of its fixed deposits into Redeemable Preference Shares to strengthen SDB’s capital base and ensure compliance with Bank Negara Malaysia’s Capital Adequacy Ratio guidelines.
The bank is shifting its focus solely to development projects in Sabah, particularly in critical sectors such as water, power, and infrastructure. – August 23, 2024.
