EXCLUSIVE: Sabah Development Bank (SDBank) has dismissed claims of needing fresh state financial aid, said its executive chairman, Datuk Lim Haw Kuang, when rejecting assertions of seeking a bailout to sustain its operations.
Lim said he does not anticipate further capital injections from the state government, countering speculation about the bank’s financial instability.
He clarified that non-performing loans (NPLs) are not rising but have been substantially reduced, particularly considering the legacy GLC loans that had remained unpaid.
Since the new board and management took over, RM2.1 billion worth of GLC loans have been settled.
“I don’t expect more capital injection from the state following the conversion of RM660 million into preference shares last year,” Lim said, addressing rumours of a state bailout.
“Not sure where the rumours come from in an election year?” he added, hinting at possible political motives behind the speculation.
Lim suggested that the rumours could have originated from discussions within SDBank about securitising its NPLs—a strategy that converts bad loans into tradable financial instruments.
However, he firmly dismissed this approach.
“A smart financial adviser suggested that SDBank try a tested and proven method to securitise the NPLs. However, I have no appetite for it – as either someone expects a big haircut from or some form of state support is required. Not sure if this is how the rumour started?” Lim said.
The decision to reject securitisation comes as SDBank targets RM1 billion to RM1.5 billion in NPL settlements this year.
It was able to settle RM879 million in Financial Year (FY) 2024. Lim highlighted that the NPLs are already backed by securities worth approximately RM3 billion, underscoring the bank’s asset strength.
In November 2024, SDBank reported non-performing loans totalling approximately RM4.89 billion.
It has been actively addressing these NPLs, initiating legal actions against 21 borrowers responsible for RM2.56 billion of the total.
Additionally, SDBank has approved settlement proposals amounting to RM879 million and anticipates recovering over RM1 billion.
The bank is confident that the recovery process can be completed within the next three years, as these loans are secured by collateral.
SDBank is presently undergoing a strategic transformation, including rightsizing and recruiting external talents, achieving a 20% reduction in manpower to date.
Lim said the bank is implementing internal measures backed by a strong governance framework and a robust results delivery mindset to restore profitability without state intervention.
In August 2024, SDBank reported a combined loss of nearly RM1 billion for Financial Year (FY) 2023 and FY2024, attributing the financial challenges to legacy issues and reduced asset values.
The losses were linked to years of “evergreening” loans, where new loans were issued to cover growing NPLs, masking the bank’s underlying problems.
This was the reason SDBank was able to report profits totalling RM580 million over the past six years.
The bank now expects a turnaround and a return to profitability this year, with FY2025 results to be reported next year.
Concerns about SDBank’s financial health came to light when Semporna MP Datuk Seri Mohd Shafie Apdal raised the issue in parliament, urging the national audit department to scrutinise the bank’s funds to ensure they genuinely benefit Sabahans.
Shafie questioned the RM900 million Sukuk bonds raised by SMJ Energy to acquire, among others, the once debt-ridden Sabah International Petroleum (SIP) from SDBank.
He described the bond issuance as a bailout for the struggling oil and gas company, suggesting that the state government was creating new debt in the process.
However, Lim countered this perception by explaining the financial restructuring.
He said that following the restructuring of SIP debt, the company is now debt-free and generates healthy cash flows from its Floating Production & Storage Operation (FPSO) and Floating Storage Operation (FSO) businesses.
The high-interest debt previously owed by SIP has been swapped with low-interest sukuk, resulting in substantially reduced interest charges of RM60 million in 2023 alone.
Lim clarified that SDBank borrowed money from the market to lend to SIP.
By settling the SIP debt, SDBank could repay the borrowing, save on interest charges, and redeploy funds for more productive uses.
He added that SMJ Energy (SMJE) received only RM50 million in seed money from the state when it started up and with no other state financial support.
Within two years (2023-2024), it declared RM110 million to the state while establishing itself with assets of RM5 billion.
It also reported a profit after tax of RM259 million for FY2023 and is expected to report another very healthy profit after tax for FY2024.
Lim emphasised that SDBank’s strategic measures and restructuring efforts are effectively steering the bank towards profitability, dismissing any need for state intervention or bailout.
SDBank is crucial to Sabah as it finances key infrastructure projects, driving economic growth and improving public welfare. Its stability directly impacts livelihoods and the state’s development trajectory. – February 21, 2025.
