Business

Saturday August 8, 2009

Banking on SMEs

By RACHAEL KAM and SHARIDAN M. ALI


The segment remains one of the primary growth areas for banks.

BANKS in Malaysia foresee lending to small and medium enterprises (SMEs) to be a key component of their business in the next five to 15 years with SME loans remaining one of their primary growth areas.

The reason is simply because the SME segment accounts for the most business entities in the country and will continue to be the main engine of economic growth.

Despite the challenging economic outlook, both local and foreign banks in Malaysia believe that they are able to register positive growth in the SME segment as they have put in place the infrastructure and manpower to achieve their objectives.

Following a slower loans growth and loan approvals in the first quarter, banks see signs of lending activities picking up again, thanks to the various Government initiatives.

Credit Guarantee Corp (CGC), a subsidiary of Bank Negara, sees the SME segment requiring a broader range of financing options and services.

Its managing director and chief executive officer Datuk Wan Azhar Wan Ahmad says CGC is expected to offer a broader range of credit enhancement products and services that include equity funding, security, bond issuances for SMEs, direct lending, amongst others.

“Businesses that maintain a good track record and financial management would tend to benefit the most in terms of access to financing in the future.

“A greater degree of transparency will also be expected of both the SMEs and the lenders.

“In this regard, the role of our SME Credit Bureau is expected to be vital for independent assessment of the viability and credibility of the SMEs,” he says.

CIMB Bank head of business banking Tan Leng Hock says the bank’s SME financing portfolio accounts for 12.5% market share in the local industry, and it had in 2008 approved loans in RM6.8bil to SMEs.

“Although business was a little slower in the first quarter, we expect approvals of close to RM6bil this year, as the momentum usually picks up in May and June,” he says.

Alliance Bank Malaysia Bhd group chief executive officer and Alliance Financial Group Bhd director Datuk Bridget Lai says its SME banking unit currently forms the largest component of the commercial banking department.0

She says that in its recent financial years, Alliance’s commercial banking segment contributed about 40% to the bank’s pre-tax profit.

“The SME unit continues to register loans growth despite the recent global financial crisis and we believe that it will continue to grow in the current financial year,” she says.

At end 2008, EON Bank Group had outstanding SME loans of RM6.3bil, or 20% of its RM31.1bil total loans.

Peter Y.C. Chow, head of group business and investment banking, says the SME loans segment constitutes 56% of its total business banking loans of RM11.3bil.

Last year, EON Bank’s SME loans achieved 9.6% growth year-on-year.

“Loans growth during the year was impacted by substantial repayments, especially in the final quarter, compounded by a slowdown in economic activities,” he says, noting that its market share in SME loans grew from 4.1% in 2005 to 5% now.

RHB Banking Group views the Government’s expectation to increase SMEs contribution to 37% to the gross domestic product next year as an opportunity to further develop the important business segment.

According to its head of retail banking Renzo Viegas, SMEs loans will always be a vital business segment for RHB as they are key drivers of economic growth.

“We anticipate that our new disbursement of loans to SMEs will grow by at least RM890mil by the year-end from the total of RM3.9bil loans approved last year,” he says, adding that it recorded 30% growth in 2008.

“Currently, about 60% of the bank’s commercial loan portfolio was dominated by SMEs,” he adds.

OCBC Bank (Malaysia) Bhd director and chief executive officer Jeffrey Chew says the bank recorded total outstanding loans to SMEs of RM3.8bil in 2008, and it has achieved 35% annual growth in SME loans the past two years.

Citi Malaysia global commercial bank managing director Alfred Chan says the bank helps its SME customers expand their businesses, both regionally and globally.

“But SMEs need to be different to compete in the global market in terms of management costs, process improvement and new product launches.

“We have a sizeable loan portfolio for the SME business and have enjoyed uninterrupted growth. In fact, over the past three to five years, we have been growing at 20% to 30% annually,” he says.

Chan says Citi Malaysia ventured into this segment at the height of the Asian financial crisis in 1998 and had supported and helped many SMEs grow their businesses, particularly companies expanding offshore and as well as those involved in international trade.

“We have also developed and introduced many new and innovative products to meet their changing needs,” he says.

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