Prudent for SDB to loan AirAsia RM300m?
Published on: Sunday, November 08, 2020
By: John Lo
Text Size:

NOT for me to comment on the legality or otherwise on the RM300m loan SDB has granted to Air Asia. The CM has reported it to MACC and the former CM has defended. Neither can Air Asia claim all is above board. Let MACC and the court decide. Also, not appropriate for me to comment on this loan from its political perspective. I will leave it to politicians and Sabahans, in general, to chew on it.  Instead I would like to comment on another perspective. It is called PRUDENCE. 

Prudence, its meaning, its implications.

The meaning of prudence is simply these: -
[1] The ability to govern and discipline oneself by the use of reason. [2] Sagacity or shrewdness in the management of affairs.[3] Skill and good judgment in the use of resources. [4] Caution or circumspection as to danger or risk.

Prudence is top of the four quintessential qualities for any society or individual to progress as stated in this old saying “let Prudence direct you, Temperance chasten you, Fortitude support you and Justice be the guide of all your actions”. Prudence has other sister virtues like trustworthiness, honesty, truth, credibility and dedication to serve. 

Prudence has little legal or illegal implications in politics or legality. Yet, it is more important than both in many ways. Prudence is one essential quality that political leaders and society must have to achieve genuine progress. Loss or lack of prudence is like having lost the soul, no conscience in a political leader or society. 

I like to ask a few questions on this RM300m loan from the perspective of prudence.

Prudent to approve this loan in then prevailing economic, business environment?

To put this RM300m loan for Air Asia in proper perspective, the Sabah, Malaysia and global economies were obviously on the decline by the end of 2018 [Malaysia’s growth declined to 4.7pc], very apparent in 2019 when Sabah grew only 0.5pc [investment was softening and export weakening]. The Covid-19 pandemic had turned the world upside down in the first quarter 2020. Airlines were coming down like ten pin bowling. All the “red lights” were in full blast. The Air Asia’s loan application must have been made during this period of grave economic uncertainties. Prudence of the highest magnitude should have prevailed. 

In this context, was SDB Board of Directors prudent in giving RM300m loan to a budget airline like Air Asia whose business model operation is on a razor-thin profit margin?

Prudent for SDB to grant this loan?

Sabah Development Bank is a small bank, very small by any standard. It’s size, as can be seen from SDB’s financial highlights, is no bigger than a sizeable branch of any large bank. The SDB Board of Directors are well qualified professionally and with excellent good standing in the community. They are the crème de la crème in Sabah society. They are the trustees and custodians of the money/liabilities in SDB belongs to all Sabahans ultimately. As would be expected of them, the deliberation on this RM300m to Air Asia must have been well and truly above board. There shouldn’t have been any impropriety at this level. But the fundamental question is the PRUDENCE of this RM300m loan which, on the surface and prevailing economic circumstances within Sabah, Malaysia and globally, do not make sense.

Prudent to loan RM300m to Air Asia in view of its sizeable debts?

In addition to above points, would it be prudent to approve this RM300m loan when SDB Board of Directors have known of Air Asia’s billions of debts as part of credit assessments from its financial statements. Air Asia would be one of the largest debtors in Malaysia. Is it prudent to approve this RM300m to Air Asia when the economic situation was worsening by the day since 2019, by the hour when Covid-19 struck in 2020 and in view of Air Asia’s huge debt?

Prudent for SDB Board of Directors to believe Air Asia can create 100,000 jobs?

Air Asia has claimed it could create 100,000 jobs in Sabah. This is Air Asia’s raison d’être for this RM300m loan. Have SDB Board of Directors been truly prudent in its approval of this loan? Is this claim achievable? A rookie credit officer in any bank or a first-year university economic student would tell you that creating 100,000 jobs in Sabah’s context would need many billions of investments. Unless there is a magic wand! The Sabah tourism industry has existed for more than 30 years, has had a good run for many years. Yet, I don’t think it has created 100,000 jobs for Sabahans. Then the question is what sort of proposal Air Asia has produced which can convince the SDB Board of Directors to approve loan. I hope SDB or Air Asia can share this proposal with Sabahans. It will be interesting to see how Air Asia can realistically fulfil this promise and in what is the time frame to fulfil it. Air Asia has claimed it has created 60,000 jobs in Sabah. Any material evidences? What is the measurement methodology for Air Asia to develop the 100,000 jobs? Are there penalties if Air Asia fails to develop 100,000 jobs for Sabahans? Are there performance milestones for Air Asia to produce?

The nature of creating 100,000 job is for a specific purpose which would, in normal banking practice, require a progressive loan disbursements and repayment schedule. I hope SDB Board of Directors have this in place. The loan cannot be for working capital as it is not for trading.

In the final analysis and the brutal reality is Air Asia is fighting for its very survival. Instead of creating 100,000 jobs for Sabahans, it has retrenched its staff. I wish Air Asia well.

Prudent to release the loan in one lump sum of RM300m?

The creation of 100,000 jobs can only happen over a lengthy period of time. Can never be instantly. Is it prudent for the SDB Board of Directors to release the whole of RM300m in one lump sum? Have the SDB Board of Directors been convinced or seen evidence that Air Asia has created 100,000 jobs when they allowed this RM300m loan to be released at one go? Why didn’t the SDB Board of Directors, if they still wanted to approve the loan, to impose a progressive release with the amount of each tranche being dependent on proven performance by Air Asia? The SDB Board of Directors should provide their rationale for granting this loan and its one lump sum release to allay misconceptions/speculations of their approval.

Do the SDB Board of Directors know or have evidence if Air Asia has utilized the RM300m loan for its intended purpose of creating 100,000 jobs for Sabah? If not, where is the money now?

At point of loan release, the global and domestic macro and micro economic environments were already very bad and a new government has already installed. A thorough review and reconsideration of the loan before its release would have been professionally wise. Most importantly, the SDB Board of Directors should have briefed the new Minister of Finance of this very large loan, its potential default and the complications of recovery. This should be routine.

Prudent for SDB to seek alternative avenue for 100,000 job creation?

Have SDB Board of Directors considered giving this RM300m as loans for outstanding promising young Sabahan entrepreneurs and new businesses or to Sabah’s many struggling SMEs? Would this be more beneficial for the Sabah economy in the short and long term? Will it give SDB better risk management by spreading this RM300m to smaller Sabahan customers, serve Sabah’s economic interest better?

Prudent to believe Air Asia can create 100,000 jobs at cost of RM3000 each?

By Air Asia’s method, the cost of creating one job is RM3000 only. This is very cheap considering the RM300m is a loan with interest payable. Have the SDB Board of Directors done research on the cost of job creation in Sabah? Can RM3000 create a job? What type of jobs? Are they suitable for Sabahans? What type of pay?

Prudent for SDB to grant RM300m loan to a single borrow? 

Finally, I like to draw attention to this RM300m loan to a single borrower in relationship to some pertinent financial positions of SDB from its 2019 financial highlights.

RM300m loan vs SDB’s total income of RM476.39m.

RM300m loan vs SDB’s profit before tax of RM149.4m

RM300m loan vs SDB’s profit for the yearRM105.92m

RM300m loan vs SDB’s share capital of RM562m

RM300m loan vs SDB’s reserves of RM598.69m

RM300m loan vs SDB’s total shareholder fund of RM1160.60m

RM300m loan vs SDB’s total assets of RM7160.96m

Is it prudent for SDB Board of Directors to grant the loan of RM300m to Air Asia in the context of SDB’s financials? Would the SDB Board of Directors give this loan and the manner in which it has been released if this RM300m is their money? Their answer is the acid test of their prudence.


Whose responsibility for losses from this RM300m if any?

I am not saying losses will occur definitely. If the loan has been granted illegally and losses incurred subsequently, who is responsible? This question should be asked and answered now.

Convention and gentlemanly conduct.

It is convention and gentlemanly act for the SDB Board of Directors to voluntarily submit their resignation and effect a smooth handover when a new government has been installed. Of course, they can be reappointed subject to the discretion of the new government. The new Board and management can assess what can or should be done with this RM300m now that it has been released in one lump sum.

I hope the SDB Board of Directors can tell us they have acted with utmost prudence and the rationale for their approval of this RM300m to Air Asia.

Lastly, I wish Air Asia all the very best for a speedy recovery from its present difficulties. SDB has a RM300m stake in it.




Follow Us  

Follow us on            

Daily Express TV  

Opinions - Most Read