Business

Monday June 22, 2009

More SMEs may restructure loans

By SHARIDAN M.ALI


PETALING JAYA: Credit Guarantee Corp (CGC) is seeing increasing demand from small and medium enterprises (SMEs) for loan restructuring to improve their cash flow under the weak market environment.

Managing director and chief executive officer Datuk Wan Azhar Wan Ahmad said for every two accounts that turned into non-performing loans (NPL), one would restructure its loan for lower instalment amount and a prolonged repayment period.

“We used to see regularisation rate of about 20% to 30% in the past but now it is averaging at 40% to 50%,” he told StarBiz.

He said loan restructuring would ensure the business continuity of SMEs and help lower the NPL rate. “This is the pre-emptive measure that Bank Negara talked about. Before an account turns into NPL, the company’s cashflow must be examined to see how much it can afford to pay.It’s okay if the repayment schedule is extended as long as the borrower continues doing business and is prompt on his instalments. What is the point of recalling the loan and (end up) killing a business,” he said.

An account will fall into the NPL category if the borrower misses three consecutive instalments. On other initiatives to alleviate the burden of SMEs, Wan Azhar said CGC even let borrowers pay in several instalments the guarantee fee that was usually paid in a lump sum on an annual basis.

On the target to guarantee RM3.5bil in loans this year compared with RM3bil last year, Wan Azhar said CGC was confident of achieving the target as the number of borrowers was expected to increase due to the need for credit facilities.

“Borrowers are also seeing the average loan size per borrower shrinking but the number of borrowers is actually increasing.

“On average, the loan amount per borrower used to be around RM500,000 but has now come down to between RM400,000 and RM450,000 and we expect it to fall further to RM350,000,” he said.

CGC has guaranteed RM1.13bil worth of loans to 5,068 SMEs up to May 31 compared with RM1bil in loans to 2,900 SMEs in the previous corresponding period.

On the current general business climate for SMEs, Wan Azhar said it was a period of consolidation, managing resources in terms of manpower, financing and capacity as well as planning strategies for the next market upswing.

“It is very clear that demand for products has slowed down thus there is no necessity to expand capacity. But, the bearish market gives SMEs ample time to re-look their business strategies on product market, target group, sectorial risk and financial management,” he said.

On portfolio guarantee agreement, Wan Azhar said CGC was in talks with two banks to forge partnerships for new avenue to access financing. CGC had in April partnered Standard Chartered Bank (M) Bhd, which facilitates up to RM300mil in loan facilities to SMEs.

“We hope to ink the partnership with one bank before year-end and with the second early next year. The turnaround time (for loan approvals) would be reduced for SMEs with the portfolio guarantee agreement,” he said.

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