Business

Saturday March 7, 2009

About-turn in loans sector

By EILEEN HEE


MAKER of laminate flooring, Inovar Resources Sdn Bhd managing director P.C. Tam has witnessed how much change can happen in six months. Then, he says banks were knocking on his door, offering loans. But not anymore. The company’s recent application for a RM4mil facility for working capital requirement was somewhat rejected.

“We applied for a RM4mil loan, but the bank only offered RM1mil. This is as good as a rejection. We need RM3mil-RM4mil for working capital and our application amount was well collaterised,” he says, regretfully.

“They are more cautious and reluctant to lend,” he adds.

There are many other small and medium enterprises facing similar hurdles as Tam’s company.

Tam ... we applied for a RM4mil loan, but the bank only offered RM1mil. This is as good as a rejection

One of them is Kingoya Corp, which deals in harvesting equipment, gadgets and safety gear. Its managing director Yama Yeo admits that the terms to secure loans are getting tougher.

“Banks are tightening their belts. Terms discussed six months ago are no longer approved now,” he says, adding that more collateral is being sought for the loans.

“Working capital loans like letter of credit and bankers acceptance are being approved selectively and mainly for existing clients only,” he says. “Expansion plans and green field investment loans from banks are also taking longer to review. We understand that banks are lending but they are more cautious,” he continues.

Meanwhile, on the household loan segment, global account manager Hayleigh Lee’s recent application for housing loan was also rejected. “Banks are scrutinising our credit history more closely now,” she says.

The question arises – are banks scaling back on lending or are they simply being cautious in their loan approvals considering the tough climate? There is data to prove that it is a combination of both.

Bank Negara’s latest data on major loan indicators showed a moderating trend in January. In the business sector, loan applications, approvals, and disbursements moderated slightly.

On the other hand, loan applications from the transport, storage and communication and finance, insurance and business services sectors were sustained, reflecting steady demand.

As at end-January, loans outstanding to the business sector expanded at an annual growth rate of 11.8% (end-December 2008:13.2%). For households, loan applications slowed but loan approvals and disbursements, especially for the purchase of passenger cars, were higher.

In defence of the banks, the Association of Banks executive director Chuah Mei Ling retorts that banks are continuing to lend to SMEs which are “viable”.

She points out that some applicants may not be altogether forthcoming and transparent about the reasons for their loan application having been rejected.

Chuah says that while some rejections may be attributed to banks acting unreasonably, on closer scrutiny that may not be the case: “Banks are committed to taking all measures as may be necessary to ensure that the Malaysian economy remains resilient.”

In view of the more stringent policies in issuing loans, would businesses and households consider alternative forms of financing?

For one, exco member of Malaysia Punjabi Moneylenders Association Tijwant Singh Gill thinks so.

He anticipates more business coming his way as banks become more risk averse.

“At the same time we are also very careful who we give loans to,” he says.

He says licensed moneylenders do go through the correct channels to do financial search on clients before approving a loan.

“We cannot be giving a loan to just about anyone who walks into our office. He will promise you the ‘star and the moon’ when he needs that loan but when it’s payback time, you realise he does not even have the means to put food on the table for his family,” he says.

He says competition was rife now more then ever with so many desperate people on the street.

Gill says that since the setting up of the Moneylenders Ordinance 1951, the interest rates had been fixed at 18% per annum for collateral loans and 12% for uncollateralised loans.

“After 58 years, there is no revision in interest rates compared to credit cards at 24% and pawn shops operators at 2% per month (24% a year) secured with gold items kept,” he says.

“We cannot be reducing it (rates) in these trying times, but nonetheless we will not take advantage of the situation and raise it,” he says, adding however that applications from certain sectors need to be weighed carefully, such as electronics, construction, hotels and airlines.

While there seems to be a slowing down of credit growth, banks should ensure that the productive sector is not starved of credit.

It should also pay attention to the requirements of credit for home owners and for those who would like to buy consumer durables and consumer non-durables.

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