SDBB Should Promote Ethical Practices

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The consequences would be devastating if the Sabah Development Bank Berhad (SDBB) is not beholden to any government authority and is just able to approve loans at it deems fit or purely at the instructions of the Chief Minister or State Finance Minister.

To recap, SDBB approved a RM98 million unsecured loan to Sabah Forest Industries Sdn Bhd (SFI) in June 2019. How could a company under Receivership, and categorized as ‘high credit risk’ obtain such a loan, and an unsecured one at that? Without collaterals, SDBB would be in a precarious position. Who takes responsibility when the loan is defaulted?

Why didn’t SDBB conduct any due diligence or credit worthiness of SFI before the loan was approved? As far as loans to such companies are concerned, and under Bank Negara Malaysia’s guidelines, it would be a big “No, No”! It simply exposes SDBB to adverse financial risks.  

It is for these reasons that there are stringent guidelines to protect the interests of financial institutions such as SDBB. It is important for financial authorities to provide risk oversight on banking practices and their Board of Directors in efforts to promote governance and prevent abuse. Who then should SDBB beholden to if not Bank Negara Malaysia?  

Why are there banking and financial acts such as Financial Services Act 2013, Development Financial Institutions Act (DFIA) 2002, Anti-money Laundering Act 2001, and so forth? It is purely to govern and ensure ethical practices by banks and financial institutions.

This in turn would enable these financial institutions to achieve their objectives and fulfill their moral obligations to society and that is to facilitate growth and development of identified economic sectors in the states and country.    

SDBB, as a Development Financial Institution (DFI), has been mandated by Bank Negara Malaysia to develop and promote key sectors considered strategic in Sabah. This is in line with the national socio-economic development objectives of the country. The strategic sectors cover agriculture, small and medium enterprises (SMEs), infrastructure, maritime export-oriented and high-technology sectors.

The specific focus on these growth sectors is highly beneficial because of the new revenue opportunities to the state. IT also serves to enhance peoples’ livelihoods and provide new employment opportunities to Sabah’s fast-growing unemployment rate.

The mandate for DFIs is clear but SDBB seems to have ‘deviated’ from its role to support the national economic agenda. It (SDBB) appears to have its own agenda by giving the unsecured loan to SFI, which in the first place is not eligible. It appears that SDBB choose to accede to the instructions of the chief minister or state government to grant the loan to SFI. SFI doesn’t even qualify as a ‘strategic sector that promotes the national economic agenda!’

For this reason, SDBB could have breached its role and must be investigated by the governing financial authority i.e. Bank Negara Malaysia.

The RM98 million unsecured loan could have gone towards the much-needed socio-economic sectors in the state, such as agriculture and small and medium enterprises (SMEs), including high-tech sectors or flood mitigation projects. Investment in these sectors would bring tremendous value to the people of Sabah and the state in terms of new business growth, new employment opportunities and revenue to the state in the form of taxes.

There must be integrity in the manner in which banking and financial transactions are conducted in Sabah. Acts and policy controls are in place to govern the practices of banks and financial institutions and to ensure corporate governance and transparency. These controls are also to ensure the financial institutions operate ethically and responsibly.

If these protocols are ignored and if practices are left to the ‘whims and fancies’ of SDBB or Sabah chief minister or Sabah’s finance minister, then it would be the people of Sabah who stand to suffer the most.

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