Important updates: Masidi speaking at the 16th Sabah state assembly session in Kota Kinabalu. — Bernama
KOTA KINABALU: State-owned Sabah Development Bank (SDBank) recorded losses of over RM5bil in non-performing loans (NPLs) that were hidden through decades of creative accounting, says state Finance Minister Datuk Seri Masidi Manjun.
He said the RM5bil in NPLs reflected 75% of the total of RM6.6bil in loans released by the bank as of May this year.
Apart from carrying out creative accounting by providing fresh loans to borrowers to cover up its non-performing loans, he said there was a total management “meltdown” in checks and balances in approving loans to unqualified companies.
“SDBank has been giving out loans to borrowers and when they were unable to repay, creative accounting was applied.
“New loans were created to pay for the overdue repayments so that these loans would not go into the non-performing loans category.
“Basically, this is like digging a bigger hole to fill up an old hole,” he told Datuk Seri Shafie Apdal (Warisan-Senallang) at the state assembly here yesterday.
Masidi said for principal loans and interest overdue from borrowers, on paper it appeared that the principal amount owed was “repaid” and “collection” appeared to have been done, reflecting the interest owing as “income earned” in the bank’s books.“The NPL numbers will also be reduced as these loans are now seen to be ‘performing’,” he said in explaining how the creative accounting methods were done.
Masidi added that through such creative accounting, the previous SDBank management was able to report profits of RM580mil for the past six years.
“The result is that for years, SDBank had been showing in their books good but ‘cashless’ collection, inflated interest revenue and a disguised NPL percentage,” he said.
He said state authorities could not disclose the names of the companies and owners due to confidentiality obligations between SDBank and the borrowers in accordance with the Financial Services Act 2013.
“It is not just the financial loss. The quality of existing loan assets is poor. Out of the RM6.6bil loan portfolio as at end of May 2024, 75% of them or RM5bil are NPLs,” he added.
He said SDBank raised funds by borrowing from the bond market.
“This creative accounting or recovery with no real cash collection created the financial position whereby the actual cash collection by SDBank was insufficient to cover the bond repayment due,” Masidi added.
He said SDBank had to borrow more for the repayments due, resulting in ballooning debt.
“SDBank had not been adopting best practices of the financial institutions in updating the valuation report for these security assets every two years,” he said.
Masidi said SDBank had been dubbed by the market as “the bank of last resort”, meaning that borrowers who were turned down by other banks would try their luck with SDBank.
“When some of these borrowers became ‘lucky’, the bank ended up with 75% NPLs,” he said, adding that the former management took little or no legal action to recover these bad debts.
