Tuesday, October 25, 2011

RAM Ratings reaffirms Sabah Development Bank's ratings

KUALA LUMPUR: RAM Rating Services Bhd has reaffirmed the ratings of Sabah Development Bank Bhd's debt notes.

It said on Tuesday, Oct 25 it reaffirmed the respective long- and short-term ratings of the bank's RM1 billion medium-term notes (MTN) and/or commercial paper (CP) programme (2011/2031), as well as those of its RM1 billion MTN (2008/2028) and RM500 million CP (2008/2015) programme at AA1 and P1.

'All the long-term ratings have a stable outlook,' it said, adding the ratings reflect the support which the bank receives from the Sabah Government.

As a development financial institution (DFI) fully owned by the state, Sabah Development Bank plays a strategic role as a growth catalyst for Sabah, said the rating agency.

RAM Ratings said the bank depends on the strategic direction of the state in view of its primary role as a disbursement arm for the latter.

'Sabah Development Bank naturally has lending exposures that, while not deemed commercially viable, are still viewed important from the perspective of Sabah's socio-economic development plans.

'Nonetheless, the Bank mitigates the risk of these exposures by securing collateral from the State,' it said.

Sabah Development Bank also holds key strategic investments in several non-DFI-related subsidiaries, as directed by the State.

In fiscal 2010, Sabah Development Bank's pre-tax profit surged 35.7% to RM88.0 million;'' its overall risk-weighted capital-adequacy ratio (RWCAR) remained stable at 20.7% while its tier-1 RWCAR came up to 19.5% at the end of that period.

'We note that these high levels of capitalisation provide some buffer for the bank's loan portfolio as much of its lending relates to developmental and social projects, which typically entail higher credit risk,' it said.

The ratings agency said Sabah Development Bank adopted more stringent classification criteria for loans under Financial Reporting Standard 139 last year; its gross impaired-loan ratio came up to 15.2% as at end-December 2010.

Most of Sabah Development Bank's loans are related to government-linked projects while some of them are commercially inclined.

'On this note, RAM Ratings will maintain surveillance of the balance between Sabah Development Bank's role as a public-policy institution and a commercial enterprise,' it said.

No comments:

Post a Comment