THE government has been quick to respond to grouses from SMEs about the difficulty in obtaining loans but some SMEs may have unrealistic expectations, writes JEEVA ARULAMPALAM.
"The bank providing my company with a credit facility (for purchases of commodity goods) recently decided to cut the amount without giving a reason," says a local manufacturer.
His company is appealing to the local bank, as their financial health remains sound.
"My company has never defaulted in payments and sales are still strong. We have never had this problem and the bank's decision to review our loan has come during this economic slowdown," he adds.
Bankers say they are not tightening lending. But borrowers, especially those running small and medium enterprises (SMEs), say it is an uphill battle securing financing.
This issue has not escaped the attention of Finance Minister Datuk Seri Najib Razak (who is also now the Prime Minister), who has received complaints from companies about the difficulty in obtaining loans from financial institutions, even for viable projects.
He warned these institutions not to restrict credit flow to companies or impose tighter conditions in the current economic downturn.
While banks are not expected to lend blindly, tightening the credit noose on SMEs is not an option as they are a lifeline to the economy and doing so will hamper the country's overall growth.
SMEs make up 99 per cent of the total registered businesses in Malaysia, contribute 56 per cent to total employment and account for 32 per cent of the gross domestic product.
Of late, SMEs are lamenting that banks are rejecting loans and reviewing or cutting existing loan facilities. Banks are afraid their non-performing loan ratio will grow as more businesses find it difficult to service their loans due to contracting revenues in these uncertain times.
Bankers want some sort of guarantee that they will see their money returned at the end of the day.
Standard Chartered Bank Malaysia Bhd is one of the banks that will tell you it has neither reduced its lending nor changed the way it undertakes credit assessment.
"We remain focused on doubling our lending to SMEs to RM6 billion in the next three years," says its SME banking general manager Foo Lee Hsia.
Foo says StanChart's lending to medium enterprises expanded by 94 percent in the second half of last year, while approval numbers for SMEs increased threefold and 94 per cent respectively last year.
But Foo adds that it is only natural to expect a tightening of underwriting standards in the market.
"At the same time, there may be a focus on collateral, both to ensure optimisation of capital so that lending can remain in place and to lower pricing," she says.
These factors allow a bank to ensure its asset quality remains strong. After all, many economists agree that the current crisis grew out of irresponsible lending by US banks to individuals who were not qualified to borrow in the first place due to their low credit ratings.
Greater engagement between banks and borrowers is needed. Banks need to actively communicate with their current and potential customers to gauge their loan repayment abilities.
Customers should not be seen as just another number. Instead, bankers should keep them in the loop of the bank's processes and ask customers for necessary documentation before a decision is made.
Meanwhile, SMEs facing difficulties in loan repayments should seek help from their banks early.
"Restructuring remains the best approach and transparency in data and communications from both parties is the key in this period," says Foo.
And if all else fails, Bank Negara Malaysia has opened its doors to help facilitate discussions between banks and borrowers.
Bank Negara corporate communications director Abu Hassan Alshari Yahaya says the central bank has received 361 SME cases via its Laman Informasi Nasihat dan Khidmat (information, advice and service website) from October last year till January this year.
Of these, 230 cases are related to financing, ranging from loan restructuring to loan approval delays.
About 81 per cent of the cases have been resolved, of which 44 per cent worked in the favour of the SMEs, Abu Hassan says.
The success stories include securing financing, restructuring and rescheduling of loans or attaining the right amount of credit required.
Another 37 per cent worked in the bank's favour as the SMEs did not provide adequate information or did not have viable businesses.
"Some of the SMEs are unrealistic in their expectations and we have to advise them accordingly," Abu Hassan notes. (The remaining 19 per centare pending cases.)
After the SMEs' plight was highlighted extensively in the media, Najib said the government would introduce a Working Capital Guarantee Scheme totalling RM5 billion to provide working capital to companies with shareholder equity of below RM20 million.
The government will provide a 80 per cent guarantee with the remainder coming from financial institutions. The maximum loan amount will be RM10million with a maximum repayment period of five years.
The Credit Guarantee Corporation under Bank Negara Malaysia also provides Skim Jaminan Usahawan Kecil (Small Entrepreneurs Guarantee Scheme) to fund working capital of SMEs with shareholder equity of less than RM3 million.
SME Bank, too, is extending more credit with an expected 10 per cent increase in loan approvals this year.
THE government has formed a unit that will rate Malaysia's small businesses to help speed up the bank lending process.
