Sabah Development Bank Bhd (SDB) is signaling a notable turnaround, forecasting a return to profitability in financial year 2025 after narrowing its net loss in the preceding year to RM82 million from RM684 million in the 2023 fiscal year. This improvement comes as part of a structured, three-year transformation program launched in the latter half of 2023 under a refreshed board and management team. The latest outlook underscores the bank’s focused efforts to address legacy challenges, strengthen capital adequacy, and reposition SDB as a development-first financial institution aligned with Sabah’s strategic growth agenda. While acknowledging the setback of the past, SDB emphasizes that the ongoing turnaround is rooted in disciplined risk management, asset-quality improvement, and a sharpened mandate to finance Sabah’s developmental projects, particularly in infrastructure, power, and water sectors. In its latest statements, the bank highlights a strong rebound in its capital adequacy, improved credit metrics, and a governance framework designed to sustain profitability while delivering tangible development outcomes for the state.
Strategic Transformation and Financial Turnaround
SDB’s path to profitability in FY2025 is framed by a deliberate, multi-year transformation that began in the second half of 2023 with a new governance structure and management team. The bank’s financial performance in FY2024 reflected a marked improvement over FY2023, as the net loss narrowed to RM82 million from RM684 million. Analysts and stakeholders watching the bank’s trajectory attribute this dramatic shift to a combination of targeted remediation of non-performing loans (NPLs), enhanced risk controls, and a strategic shift toward development-focused lending that aligns with Sabah’s broader economic objectives. The substantial losses recorded in FY2023 were largely driven by extensive provisions associated with NPLs and a depreciation of asset values accumulated over several preceding years. This context helps explain both the scale of the challenge faced and the magnitude of the progress now being realized.
The bank’s leadership has framed the FY2024 results as a turning point, noting that the gains reflect positive momentum in a carefully designed three-year plan. This plan was introduced by a new board and management team with a mandate to reset risk appetite, refine credit processes, and strengthen the bank’s balance sheet. In this narrative, the focus extends beyond mere profit metrics to include the quality of assets, the resilience of capital, and the institution’s capacity to support Sabah’s long-term development needs. As part of the three-year journey, SDB underscores a disciplined approach to resolving the legacy issues that constrained its earnings, while simultaneously expanding its developmental lending footprint within Sabah.
A central pillar of this turnaround has been the bank’s intensified efforts to resolve outstanding NPLs. An independent recovery team, established in September 2023, has driven a systematic program of settlements and restructurings that underpin the improving asset quality story. In this context, SDB disclosed that RM965 million in settlement approvals had already been secured, supplementing a broader framework of asset-backed security measures, including RM2 billion in pledged securities placed under receivership. These actions collectively contribute to reducing non-performing exposures and creating a cleaner, more predictable asset portfolio that supports both earnings stability and capital retention. The narrative of progress is reinforced by the bank’s emphasis on prioritizing development-oriented financing within Sabah, which represents a strategic pivot toward sectors with high macroeconomic relevance for the state.
The transformation journey has also been supported by a strengthening capital base, a factor that has gained particular significance given the bank’s evolving risk profile. End-2023 capital adequacy concerns, with a total capital ratio of 7.9%, gave way to a more robust position by end-2024, when the ratio climbed to 20.71%. This notable rebound underscores the bank’s enhanced ability to absorb potential losses and to support ongoing growth initiatives in a prudent risk environment. The Sabah state government has provided strong backing for these efforts, reinforcing the perception of SDB as a credibly supported development bank with the capacity to sustain long-term development lending despite short-term profitability fluctuations. The combination of improved capital strength and a reorganized risk framework forms a foundational layer for continued development-focused lending in Sabah while maintaining resilience in the face of market volatility.
In terms of external assessments, RAM Ratings Services Bhd affirmed SDB’s long-term debt rating at AA1 on June 4 of the current year, with a stable outlook, indicating high safety for payment of financial obligations in the long run. The short-term rating was affirmed at P1, reflecting a strong capacity to meet short-term obligations. The bank’s commercial papers also received a P1 rating, the highest short-term rating assigned by RAM, signaling robust safety for near-term obligations. These credit assessments are presented by SDB as a positive external validation of the bank’s improved risk profile and its ability to access funding on favorable terms as it proceeds with the development-focused mandate. The ratings, read together with the ordinary course of business, reinforce the narrative that the bank is moving toward sustained profitability while maintaining a prudent risk posture and a solid base of investor confidence.
A key element of the turnaround cited by SDB is the deliberate, targeted approach to addressing legacy NPLs. The independent recovery team’s work has translated into meaningful gains in settlement recoveries and a clearer strategy for resolving distressed assets. In addition to the RM965 million in settlements, the RM2 billion in pledged securities placed under receivership demonstrates a robust response to collateral impairment and asset quality concerns, helping to mitigate potential losses and provide a structured pathway to reclassify and resolve problem exposures. This dual-track strategy—proactive NPL resolution accompanied by collateral management—plays a crucial role in stabilizing earnings and preserving capital as the bank advances its development lending program.
From a governance and strategy perspective, the bank’s leadership emphasizes a shift toward financing development projects within Sabah. The Sabah state government’s mandate to SDB to focus on infrastructure-related funding and other developmental initiatives aligns the bank’s mission with visible, tangible outcomes for the state’s communities and industries. By positioning SDB as the lead financier for local-content in major investment projects, Sabah seeks to reinforce the bank’s centrality to the province’s economic growth trajectory. The implication of this strategic alignment is a more coherent, purpose-driven lending approach that supports large-scale infrastructure improvements, energy projects, and water utilities—critical components of Sabah’s growth plan that require patient capital and a stable funding framework.
As part of the multi-year transformation, SDB disclosed that between January 2024 and June 2025 it approved RM1.76 billion in loans under its developmental mandate. This figure reflects the bank’s commitment to deploying capital where it matters most for Sabah’s development, while maintaining a disciplined approach to credit. In parallel, the bank rejected RM9.65 billion worth of applications during the same period, signaling a clear stance on aligning lending with its enhanced credit standards and mandate requirements. The dual narrative of expanding approved financing for development projects while rejecting non-aligned or higher-risk proposals highlights a deliberate quality-over-quantity approach designed to ensure the long-term viability of the bank’s balance sheet and the efficacy of its mandate.
The trajectory described above points to a broader transformation of SDB—from a bank confronting legacy asset-quality challenges to a development-focused financial institution with a strengthened capital base, improved risk controls, credible credit ratings, and a clear mandate to accelerate Sabah’s development agenda. While profitability remains a work in progress, the current indicators suggest that the bank’s strategy is gaining traction and that the leadership team is delivering on the promises associated with the three-year plan. Stakeholders will continue to monitor the pace and breadth of the turnaround, the consistency of NPL resolution outcomes, and the feasibility of maintaining a robust growth trajectory in development lending. The interplay between capital adequacy, asset quality, and the ability to mobilize development funding will be central to assessing the bank’s forward-looking profitability and resilience in the years ahead.
Capital Adequacy, Credit Ratings, and Funding Confidence
SDB’s improved capital adequacy stands as a cornerstone of its recent performance narrative. The capital ratio’s ascent from 7.9% at the end of 2023 to 20.71% by the close of 2024 reflects a deliberate strengthening of the bank’s capitalization and resilience. This improvement is not only a numerical achievement; it translates into enhanced buffers against potential loan losses and greater capacity to support strategic lending programs under Sabah’s development mandate. The capital gains are especially meaningful in the context of a bank that has faced substantial past losses and a challenging asset-quality trajectory. By reinforcing capital adequacy, SDB signals to depositors, investors, and the wider market that it is well-positioned to absorb shocks while continuing to provide financing for critical public projects and private-sector collaborations within the state.
Credit ratings from RAM Ratings play a reinforcing role in this narrative. The long-term debt rating of AA1 with a stable outlook indicates a high level of safety for the payment of financial obligations, which can have tangible benefits for the bank’s cost of funding and investor perception. A stable outlook suggests that RAM does not anticipate a deterioration in the bank’s risk profile in the near term, even as it continues to manage legacy exposures and pursue development lending. The short-term rating of P1 and the P1 rating for the bank’s commercial papers further emphasize the bank’s credible ability to meet short-term obligations, a feature that is particularly relevant for the liquidity management needs associated with large-scale development financing. Together, these RAM ratings serve as external validation of SDB’s improved risk posture and support the bank’s ongoing ability to secure funding for its mandate at favorable terms.
The bank attributes much of its favorable credit perception to the Sabah state government’s strong backing. Government support, coupled with a clear and committed development mandate, provides a structural tailwind that helps reduce funding costs and enhance access to liquidity. This positioning is especially critical for a development bank that aims to deliver infrastructure-related projects in Sabah, where large-ticket financing often requires extended tenors and favorable credit conditions. In practice, the combination of robust capital, high-quality assets, and a trusted government sponsor can translate into improved confidence among counterparties, including customers, suppliers, and financial markets. SDB notes that RAM’s affirmation of its ratings reflects the bank’s progress under the transformation program and reinforces the perceived sustainability of its new business model.
From an operational standpoint, the improvement in capital adequacy and credit ratings enhances SDB’s ability to absorb potential losses while maintaining steady lending capacity to support Sabah’s development needs. The bank can maintain a conservative risk tolerance while pursuing growth in development-oriented segments, reducing the likelihood of a liquidity crunch during periods of macroeconomic stress. The RAM ratings provide a framework for market participants to gauge the bank’s credit risk in relation to peers and to benchmark its performance against industry standards for development finance institutions. In this environment, SDB’s management emphasizes prudent risk management, disciplined lending practices, and ongoing governance improvements as essential components of maintaining investor confidence and ensuring sustainable profitability.
The research and analysis of SDB’s risk profile, collateral management, and NPL resolution progress suggest that the bank’s improved ratings are not merely a symbolic signal but a practical enabler for longer-term financing strategies. The cash flows associated with a higher-capital, higher-credit-quality profile can help lower the overall cost of capital, enabling more competitive pricing for development loans and long-tenor facilities that are aligned with Sabah’s infrastructure programs. Moreover, the ratings framework offers a transparent yardstick for monitoring future risk events and the effectiveness of the independent recovery team’s work. As the bank builds on its three-year transformation, maintaining or further improving its credit ratings will be closely watched by investors and stakeholders who are seeking tangible evidence of a durable, scalable business model that can sustain development lending while preserving financial stability.
A critical aspect in the financing of development projects lies in the ability to mobilize local resources and attract external funding without compromising risk controls. SDB’s strategy—anchored by a strong capital base and corroborated by high-quality credit ratings—positions it to pursue larger, more complex infrastructure deals, including those with integrated local-content requirements. The bank’s emphasis on local development aligns with Sabah’s policy priorities, adding a reputational and operational edge when negotiating with contractors, project developers, and sovereign or public-sector counterparties. In turn, this alignment is expected to improve project bankability, reduce funding gaps, and sustain a virtuous cycle where successful loan disbursements feed back into stronger asset quality and continued capital reinforcement. The ongoing governance enhancements, together with the external validation from RAM, reinforce the bank’s profile as a credible, long-term partner for Sabah’s public and private sectors.
NPL Resolution Journey and Recovery Initiatives
A defining element of SDB’s turnaround is its aggressive and structured approach to non-performing loans. The independent recovery team, created in September 2023, has been at the forefront of the bank’s NPL resolution efforts. This unit’s mandate has been clear: to identify, recover, and restructure distressed assets in a way that stabilizes the bank’s asset quality and creates a viable path to classification as performing or adequately provisioned exposures. The results referenced by the bank—RM965 million in settlement approvals to date—underline the effectiveness of this targeted remediation program. These settlements likely involve a mix of debt settlements, restructurings, and possible write-offs where appropriate, all conducted under a framework designed to maximize recoveries while safeguarding the bank’s capital and liquidity.
In addition to these settlements, SDB has placed RM2 billion worth of pledged securities under receivership. This measure serves several purposes. It provides a buffer against potential losses arising from the underlying collateral, supports the bank’s ability to secure recoveries through collateral realization or restructurings, and demonstrates a proactive stance toward asset management. The receivership status signals a disciplined and transparent approach to addressing collateral impairment and ensuring that the bank’s balance sheet reflects a more accurate and prudent assessment of risk. Together with the independent recovery team’s efforts, these actions contribute to a more manageable risk profile and a clearer path toward recognizing recoveries in future financial statements.
The bank emphasizes that these NPL-focused measures are integrated into its broader three-year transformation plan. By systematically addressing legacy NPLs, SDB is reducing the drag on earnings that had characterized earlier years and laying the groundwork for more predictable profitability in the medium term. The outcomes of the NPL resolution program are expected to translate into improved loan performance metrics, lower concentrations of unperforming assets, and a more stable net interest income trajectory. As the bank continues to implement the recovery program, it is likely to see a gradual improvement in asset quality indicators, alongside a reduction in impairment charges as and when settlement recoveries finalize and the risk weights associated with older exposures are recalibrated.
From a governance viewpoint, the NPL resolution initiative is anchored in accountability and targeted expertise. The independent recovery team’s work not only focuses on financial recoveries but also involves a deep dive into the root causes of NPLs, including underwriting standards, portfolio monitoring, and early-warning indicators. The lessons learned from this experience feed into the bank’s risk-management framework, enhancing its ability to detect and respond to signals of credit stress earlier in the loan life cycle. By integrating learnings from recoveries into future lending decisions, SDB aims to prevent a relapse into an environment in which non-performing exposures dominate the balance sheet, thereby supporting a more sustainable and resilient profitability profile.
An important dimension of the NPL journey is the alignment with Sabah’s development aspirations. As SDB concentrates its lending within Sabah’s infrastructure, power, and water sectors, maintaining robust asset quality in these exposure classes is essential. The bank’s approach to NPL management is therefore not only a risk control measure but also a strategic instrument for ensuring that development funding remains stable and reliable. The interplay between effective NPL resolution and the bank’s development mandate underscores a broader objective: to deliver credible, long-term financing for essential public works and private-sector engagements that underpin Sabah’s economic progress. The NPL journey, including settlements and collateral management, is central to the bank’s ability to sustain lending momentum while maintaining sufficient capital and liquidity to weather potential future shocks.
Beyond the numeric milestones, SDB highlights a cultural shift in risk management and execution discipline. The NPL remediation program has necessitated tighter governance checks, enhanced portfolio reviews, and more rigorous credit-risk assessment processes. This cultural evolution is designed to become embedded in the bank’s daily operations, ensuring that risk controls are not merely compliance requirements but active, value-adding components of the lending cycle. In practice, this translates to stronger credit documentation, more robust covenants, and improved post-disbursal monitoring, all of which contribute to reducing the probability and severity of future non-performing loans. The cumulative effect of these measures is intended to elevate the bank’s overall risk-adjusted return on capital and reinforce a resilient performance framework capable of supporting Sabah’s development ambitions.
The NPL resolution program’s success is also linked to the bank’s ability to attract and maintain stakeholder confidence. The settlements, collateral arrangements, and receivership actions are communicated as evidence of decisive, outcome-driven management. This transparency, combined with tangible progress in reducing distressed exposures, can help reassure investors, regulators, and the Sabah state government that SDB remains on a credible path toward sustainable profitability. As the bank continues to implement lessons learned from past challenges, the emphasis on disciplined risk-taking, clear accountability, and measurable outcomes is likely to yield long-term benefits in both risk management and financial performance. The ongoing NPL journey remains a critical driver of the bank’s ability to deliver on its developmental mandate while preserving financial strength and resilience for the future.
Sabah’s Development Focus and Strategic Mandate
At the heart of SDB’s modernizing agenda is a clearly articulated mandate to prioritize development-oriented financing within Sabah. The bank’s strategic pivot aligns with the Sabah state government’s policy objectives to stimulate infrastructure development, improve utilities, and foster local economic activity through targeted capital deployment. This alignment positions SDB as a central pillar of Sabah’s envisioned economic growth engine, with a focus on long-term, high-impact projects in the infrastructure, power, and water sectors. The state’s emphasis on local-content in major investment projects further reinforces the bank’s role as a catalyst for domestic value creation, job generation, and skills development within the Sabah economy. By structuring its lending program around these priorities, SDB seeks to maximize developmental outcomes while maintaining prudent financial management.
From a portfolio perspective, SDB’s development mandate has led to a deliberate and selective approach to lending. The bank reports that between January 2024 and June 2025 it approved RM1.76 billion in development-focused loans, reflecting a strong commitment to deploying capital in ways that can yield tangible improvements in infrastructure and services for Sabah’s residents and businesses. Conversely, the bank rejected RM9.65 billion worth of applications during the same period, underscoring a rigorous screening process designed to ensure that only projects that meet the mandate and align with enhanced credit standards proceed to disbursement. This disciplined approach serves a dual purpose: it safeguards the bank’s financial health and reinforces confidence that development funds are allocated to projects with sound viability, credible revenue streams, and clear social or economic benefits for the state.
The emphasis on local-content in large investment programs is a notable dimension of SDB’s strategy. By taking a lead financing role in projects that emphasize Sabah-based suppliers, contractors, and labor, the bank contributes to the state’s broader goals of economic diversification, greater local participation, and capability development. This approach also encourages project developers to integrate Sabah-based ecosystems into their supply chains, potentially reducing leakage and increasing local capacity. The bank’s development-focused orientation, therefore, is more than a funding mechanism; it is a strategic instrument that can help shape the structural evolution of Sabah’s economy toward greater self-reliance and resilience. The results of the development-mandate program can be observed in the steady flow of approved loans within Sabah’s priority sectors and the ongoing evaluation of project viability against a robust credit framework.
In practice, the bank’s mandate-driven lending operates within a framework of stringent risk controls and ongoing monitoring. The development program’s success relies on credible project appraisal, due diligence, and ongoing performance tracking to ensure that disbursements translate into on-time project execution and the anticipated economic benefits. SDB’s management has signaled that it will continue to refine its processes to improve efficiency, transparency, and accountability, thereby enhancing the likelihood of achieving development outcomes while maintaining financial stability. The bank’s progress in aligning its lending practices with Sabah’s development priorities signals a broader governance and strategy evolution that seeks to balance social impact with prudent risk management and sustainable earnings.
The broader impact of SDB’s development mandate on Sabah’s economy can be conceptualized through several channels. Infrastructure investments funded by the bank can unlock productivity gains, attract private sector investment, and improve public service delivery for residents. The emphasis on local-content could stimulate domestic supply chains, create jobs, and build local capabilities across construction, engineering, and related industries. Moreover, the bank’s role in financing critical utilities such as power and water aligns with long-standing imperatives to improve resilience, reliability, and access to essential services. Taken together, the development-focused financing approach not only supports immediate capital needs but also lays the groundwork for a more vibrant, diversified Sabah economy in the medium to long term. The bank’s leadership has asserted that the development mandate is central to its strategic identity, guiding its risk appetite, product design, and stakeholder engagement going forward.
Development Mandate Approvals, Risk Screening, and Portfolio Discipline
The period from January 2024 to June 2025 marks a decisive phase in SDB’s development-focused lending, characterized by a careful balance between expansion of approved loans and rigorous evaluation of applications. The bank disclosed that RM1.76 billion worth of loans were approved under its developmental mandate during this window. This figure reflects a deliberate effort to accelerate development outcomes by channeling capital toward projects that match Sabah’s infrastructure and services priorities. The approvals emphasize long-term, impact-driven investments, and underscore the bank’s willingness to deploy capital in areas where it can contribute meaningfully to economic growth and improved living standards for Sabah’s population.
In contrast, the bank reported that RM9.65 billion worth of applications were rejected during the same period. This level of rejection is indicative of a robust, risk-aware screening process designed to ensure that lending aligns with the enhanced credit standards and the bank’s developmental mandate. The rejections likely reflect concerns about misalignment with mandate objectives, insufficient collateral, weak cash-flow projections, or other risk considerations that would jeopardize credit quality or repayment viability. By maintaining a disciplined approach to credit, SDB aims to prevent the erosion of asset quality and to protect the bank’s capital base while continuing to support development projects with solid fundamentals.
The underlying criteria guiding approval decisions emphasize alignment with the bank’s mandate and an assessment framework that integrates credit risk, project viability, and developmental impact. This entails a structured appraisal of project economics, revenue streams, cost structures, and the borrower’s track record, as well as an evaluation of the project’s governance, sustainability, and potential social benefits. The enhanced credit standards reflect a holistic approach to risk management that balances financial prudence with development objectives. In practice, this means that the bank is not only screening for the ability to repay but also evaluating whether a project contributes to Sabah’s strategic goals and demonstrates the potential to deliver measurable economic and social returns.
The dramatic difference between approvals and rejections—RM1.76 billion approved vs. RM9.65 billion rejected—signals a strong focus on quality over quantity. It reflects management’s resolve to allocate resources to projects with robust business cases and credible risk assessments, rather than pursuing volume growth at the expense of asset quality. This approach is likely to have several downstream effects: improved portfolio mix with higher-quality assets, reduced impairment charges as the recoveries begin to materialize, and a more predictable earnings trajectory in the medium term. It also positions SDB to demonstrate progress against its three-year transformation plan, reinforcing confidence among regulators, investors, and the Sabah government in the bank’s ability to balance development outcomes with financial stewardship.
The portfolio discipline described here extends beyond the numbers. It encompasses ongoing risk monitoring, post-disbursement stewardship, and regular performance reviews to ensure that development loans deliver the intended benefits while staying within the bank’s risk appetite. The bank’s governance framework, including the independent recovery team’s work and the asset-management measures associated with pledged securities, complements this approach by providing structured mechanisms for monitoring, reporting, and adjusting strategies as needed. The net effect is a development finance platform that is more resilient, more transparent, and more capable of sustaining Sabah’s growth ambitions in the face of evolving economic conditions.
In summary, the development mandate’s implementation—evidenced by the approved loan volume, the significant number of rejections, and the disciplined screening criteria—illustrates a maturation of SDB’s lending philosophy. It demonstrates a commitment to aligning financial resources with Sabah’s strategic needs while maintaining rigorous credit discipline. As the bank continues to execute this approach, stakeholders can expect ongoing updates on the pipeline of development projects, the performance of approved loans, and further refinements to risk-management practices designed to optimize both development impact and financial stability.
Governance, Organization, and Operational Improvements
Integral to SDB’s ongoing transformation is a focus on governance, organizational structure, and operational excellence. The bank’s leadership has highlighted the role of new governance arrangements and enhanced management practices in driving the turnaround. The shift in governance, which accompanied the appointment of a new board in the latter part of 2023, is presented as a catalyst for more disciplined strategic decision-making, improved accountability, and a more rigorous approach to risk management. This structural change is reflected in the bank’s enhanced focus on development lending, governance oversight of NPL resolution, and a more transparent framework for communicating progress to stakeholders.
Operational improvements are being pursued through a combination of process reforms, risk controls, and performance management mechanisms designed to support the bank’s development mandate. These reforms include strengthening credit assessment procedures, tightening post-disbursement monitoring, and enhancing the governance architecture surrounding large-scale infrastructure financing. By embedding a culture of accountability and continuous improvement, SDB aims to shorten decision cycles for development loans without compromising risk standards. The bank’s emphasis on governance and process discipline is also consistent with the RAM-rated confidence expressed through the AA1/P1 ratings, reinforcing market expectations of a stable, well-managed institution.
In terms of organizational structure, the bank has continued to optimize its staffing, capabilities, and competencies to align with its strategic priorities. This includes aligning functional areas with the needs of a development-focused lending framework—risk management, credit underwriting, loan administration, and project monitoring—so that each function operates with a clear mandate and robust interfaces with the bank’s development operations. The objective is to ensure that the bank can efficiently translate its mandate into a robust pipeline of viable development loans and to maintain high standards of governance, transparency, and stakeholder communication.
One of the key operational outcomes from governance and organizational enhancements is improved risk-adjusted return on capital. By achieving stronger capital adequacy, reinforcing asset quality through NPL resolution, and maintaining disciplined lending to prioritized sectors, SDB expects to deliver a more stable earnings profile while continuing to invest in Sabah’s infrastructure needs. The governance improvements are designed to support this trajectory by ensuring that decisions are well-documented, that risk exposure is monitored in real time, and that the bank’s leadership remains accountable to the state government, regulators, and investors.
The three-year transformation plan also includes a continuous emphasis on ethical standards, compliance, and anti-corruption measures—elements that are essential to maintaining public trust and ensuring sustainable development outcomes. The bank’s management has indicated that governance reforms will continue to evolve, with ongoing reviews of policies, controls, and performance metrics. This continuous improvement approach is intended to strengthen the institution’s resilience and to ensure that governance remains fit for purpose as the bank expands its development lending portfolio and navigates an increasingly complex financial environment.
In addition, SDB’s governance and organizational changes are positioned to support enhanced stakeholder engagement. By communicating progress on capital adequacy, NPL resolution, and development outcomes in a transparent manner, the bank seeks to sustain investor confidence and public trust. The bank also emphasizes closer collaboration with the Sabah state government, project developers, and local communities to ensure that development projects are aligned with local needs and generate measurable social and economic benefits. The governance framework is thus a crucial enabler of both financial discipline and developmental impact.
Operationally, the bank’s focus on efficiency and effectiveness includes investing in technology and data analytics to improve decision-making, monitoring, and reporting. A data-driven approach supports more accurate risk assessments, better portfolio management, and timely identification of emerging credit issues, enabling the bank to respond quickly to adverse developments. By leveraging technology and analytics, SDB aims to streamline processes, reduce cycle times for approvals and disbursements, and improve the overall customer experience for development borrowers while maintaining rigorous risk standards. The combination of governance, organizational refinement, and operational improvements is central to building a sustainable institution capable of delivering on Sabah’s development ambitions while preserving financial stability.
Outlook for FY2025 and Strategic Roadmap
Looking ahead to FY2025, SDB’s leadership frames profitability as the central objective, with the understanding that continued progress on NPL resolution, asset quality improvement, and capital strengthening will be critical to achieving a sustainable profit path. The anticipated profitability hinges on maintaining the positive momentum generated by the three-year transformation, extending the gains from the consolidation of the balance sheet, and further optimizing the bank’s development lending program. The improved capital adequacy ratio provides a robust foundation for pursuing additional development finance within Sabah while managing risk in a disciplined manner. The RAM ratings, reflecting confidence in the bank’s risk management and financial resilience, support a continued ability to raise funds on favorable terms as the bank expands its development lending activities.
The bank’s development mandate is expected to drive ongoing loan approvals in Sabah’s priority sectors, particularly in infrastructure, power, and water projects that underpin the state’s growth strategy. The approved RM1.76 billion in development loans from January 2024 to June 2025 demonstrates a sustained commitment to capital deployment for transformative projects. At the same time, the RM9.65 billion of applications rejected during the same period signals a disciplined approach to credit risk, ensuring that only projects with credible viability, robust revenue streams, and alignment with the development mandate proceed to disbursement. This selective approach is essential for maintaining the balance between development impact and financial integrity, which is critical for the bank’s long-term sustainability.
In terms of risk management, SDB emphasizes maintaining a prudent stance toward NPLs while capitalizing on the progress achieved through settlements and collateral management. The independent recovery team’s work, together with the receivership arrangements for pledged securities, provides a robust framework for continuing to address legacy exposures. The bank’s management acknowledges that the path to profitability will not be linear, given the complexities of resolving past-due loans and the potential for macroeconomic headwinds. However, the bank remains confident that the combination of stronger capital, credible credit ratings, and a disciplined development lending program will support a gradual improvement in earnings over the coming year.
The strategic roadmap for FY2025 includes several key priorities. First, sustaining the ongoing NPL resolution momentum with continued settlements and effective asset management to reduce distressed exposures further. Second, maintaining and enhancing capital adequacy to buffer potential shocks while expanding on the development lending program. Third, leveraging government backing and the Sabah-centric mandate to secure funding for large-scale infrastructure initiatives and other priority projects. Fourth, strengthening governance, risk management, and operational efficiency to ensure that the bank can scale development financing while preserving financial resilience. Fifth, deepening local-content initiatives and collaboration with Sabah-based suppliers and contractors to maximize local economic benefits from development investments.
SDB also signals ongoing efforts to optimize portfolio risk through enhanced credit criteria and more targeted due diligence practices. This includes refining project appraisal methodologies, monitoring mechanisms post-disbursement, and instituting more robust covenants where necessary to safeguard the bank’s position. By embedding these practices into daily operations, the bank aims to sustain improvements in asset quality and to enhance the predictability of earnings streams associated with its development lending program. While recognizing that challenges may arise, the bank’s strategic logic remains that a disciplined, mandate-driven approach—complemented by a strong capital base and credible external ratings—will yield a durable profitability trajectory and a measurable, positive impact on Sabah’s development trajectory.
In conclusion, SDB’s FY2025 profitability outlook is underpinned by a combination of improved asset quality, stronger capital adequacy, credible credit ratings, and a clear development-focused mandate that aligns with Sabah’s long-term growth strategy. The bank’s three-year transformation—anchored by governance changes, NPL resolution, and capital strengthening—has begun to translate into tangible results, even as it navigates the complexities of legacy exposures. The forward-looking plan emphasizes continued NPL resolution, disciplined lending aligned with development objectives, and ongoing governance and operational enhancements to sustain profitability while delivering meaningful socio-economic benefits for the people of Sabah. As SDB advances toward a sustainable profit trajectory, stakeholders will be watching the consistency of its development lending, the resilience of its capital, and the transparency of its progress in achieving the state’s development goals.
Conclusion
Sabah Development Bank’s recent disclosures outline a comprehensive, multi-faceted transformation designed to restore profitability and reinforce its role as Sabah’s development financier of choice. The substantial narrowing of losses in FY2024, the strong rebound in the capital adequacy ratio, and the affirmation of high credit ratings together create a foundation for a more stable earnings path in FY2025 and beyond. The three-year turnaround, anchored by a new board and management, has driven focused efforts to resolve legacy NPLs through an independent recovery team and collateral management measures, underscoring the bank’s commitment to asset quality and risk discipline. The bank’s development mandate—emphasizing infrastructure, power, and water within Sabah—has been sharpened by a governance framework that prioritizes prudent lending, selective approvals, and a measured risk appetite aligned with the state’s economic objectives. The approvals of RM1.76 billion and the rejections of RM9.65 billion in development lending over the period illustrate a disciplined, quality-centric approach that seeks to maximize developmental impact while safeguarding the balance sheet.
The Sabah state government’s ongoing support is a critical catalyst for SDB’s resilience and ability to pursue ambitious development projects. RAM’s ratings affirm confidence in the bank’s capability to withstand financial shocks while funding long-term infrastructural investments. The bank’s disciplined approach to NPL resolution, reinforced by the independent recovery team and receivership arrangements, points to a more manageable risk profile in the near term, with the potential for improved profitability as recoveries materialize and the loan book stabilizes. In sum, SDB’s trajectory reflects a deliberate alignment of strategic priorities, governance improvements, and capital strengthening designed to deliver sustainable development outcomes for Sabah and a durable, balanced financial performance for the bank.
