KUALA LUMPUR – The Sabah government has launched a civil suit of more than RM2 billion against Ernst & Young PLT (EY), alleging that the audit firm failed to fulfil its professional obligations while reviewing the financial statements of Sabah Development Bank Berhad (SDB) over an 11-year period.
The suit, filed at the High Court of Malaya in Kuala Lumpur, names the Sabah government, Sabah Chief Minister, Sabah Development Berhad and SDB Corporation Sdn Bhd as plaintiffs, while EY is listed as the defendant, local media reported.
In their statement of claim, the plaintiffs alleged that EY breached its duty of care in carrying out statutory audits of SDB’s accounts from 2011 to 2022, resulting in the bank’s deteriorating financial condition not being detected earlier.
The plaintiffs claimed that SDB had become insolvent by the financial year ending 2018, when 85.94 per cent of its loan portfolio was classified as non-performing loans (NPLs).
However, despite the alleged financial deterioration, EY continued issuing unqualified audit opinions for SDB’s financial statements between 2018 and 2022, according to the claim.
The plaintiffs alleged that these audit opinions enabled SDB to proceed with a RM3 billion bond programme in 2021, while the state government continued making significant financial commitments to support the bank.
They claimed the actual financial position of SDB only became apparent in 2023 after the bank’s new board of directors and management conducted a review of its operations and accounts.
The review allegedly uncovered serious issues, including non-performing loans estimated at about RM5 billion, representing nearly 70 per cent of SDB’s total loan portfolio.
The plaintiffs further alleged that there were instances of “ever-greening” of loans and concerns over the valuation of secured assets, which they claimed contributed to the failure to identify the bank’s financial problems earlier.
According to the court documents, the alleged shortcomings caused substantial financial losses and exposure to the Sabah government and related entities.
These included a RM650 million fixed deposit, a RM90 million capital injection, and another RM660 million fixed deposit that was later converted into redeemable preference shares.
The plaintiffs also claimed that the state government remains exposed to around RM1 billion in SDB liabilities, which are scheduled for repayment until September 2029.
The claim stated that Sabah had provided extensive financial support to SDB, including issuing support letters for a RM7.5 billion bond programme and placing fixed deposits exceeding RM1 billion with the bank.
The plaintiffs alleged that these commitments were made based on EY’s audit reports, which they claimed gave the impression that SDB’s financial position was stable.
EY had served as SDB’s auditor since 2011 before it was not reappointed in September 2024. The role was subsequently taken over by Forvis Mazars PLT, which was appointed as the bank’s auditor for the 2024 financial year.
The plaintiffs are seeking damages exceeding RM2 billion, claiming that EY’s alleged failures resulted in significant financial harm to the state government and other affected parties. – August 13, 2026