SABAH Development Bank (SDBank) will declare substantial financial losses for two consecutive years due to excessive evergreening of loans and that it has earned the title of "last resort bank" to companies that failed to secure loans from other financial institutions.
State Finance Minister Datuk Seri Masidi Manjun said the state-owned bank has hidden losses for years through fictitious loans to cover its growing non-performing loans (NPLs).
"After years of reporting profits amounting to RM580 million over the past six years, SDBank will report substantial financial losses for 2023 and 2024.
“It is not just the financial loss; the quality of existing loan assets is poor. Out of the RM6.6 billion loan portfolio as of the end of May 2024, 75% or RM5 billion are NPLs," he said during the question-and-answer session at the Sabah Legislative Assembly today.
He was responding to a question posed by Sabah opposition leader Datuk Seri Mohd Shafie Apdal (Warisan-Senallang) on the matter.
Masidi listed three reasons for SDBank's current dire situation, creative accounting, under-provisioning, and governance meltdown.
“The bank has been giving out loans to borrowers, and when the borrowers were unable to repay, creative accounting was applied.
“New loans were created to pay for the overdue repayments so that these loans would not be classified as non-performing,” he said.
He said the amount of bad loans grew so large over the years that the bank lost its ability to cover the debts raised through the issuance of bonds.
“This forced the bank to borrow more to repay the bonds, resulting in ballooning debt,” he said.
According to Masidi, SDBank also failed to update the valuation of its collateral assets over the years.
The valuation was crucial for the bank to secure further borrowing.
He said a review of the bank’s collateral assets revealed they were so outdated that a substantial provisioning was required for 2023 and 2024.
Further to this, Masidi said the management barely made any debt recovery efforts until July last year when a new board of directors took over.
“As of end-June 2024, all 43 NPLs have legal actions initiated. The new board has set a target of RM1 billion NPL recovery per year for the next three years and plans to exit Peninsular Malaysia by then,” he said.
Masidi also said a report has been lodged with the Malaysian Anti-Corruption Commission (MACC) following allegations of kickbacks by past management in April.
SDBank loaned approximately RM8 billion to numerous Peninsular companies, with 95% of it in property development in Kuala Lumpur, Selangor, and Johor between 2013 and 2018.
“The board and management are now firmly guided by a new mandate to pursue development projects that are economically and socially meaningful and environmentally responsible in Sabah, and Sabah only.
“In the first five months of this year, the bank has rejected RM1.5 billion in loan applications that did not fall within this scope.
“In the first six months of this year, RM616 million was approved in the sectors of oil & gas (RM426.5 million), energy (RM96.3 million), construction (RM62 million), and infrastructure (RM32 million), to entities in Sabah,” he said.
Masidi also said the bank’s burden of bad loans shrank to RM3.9 billion in May this year from RM5 billion previously, following the acquisition of the once debt-ridden Sabah International Petroleum by the state oil and gas firm, SMJ Energy Sdn Bhd.
All three entities are state-owned firms. – July 10, 2024
