PETALING JAYA: The slower economic growth anticipated this year is not putting the brakes on the small and medium enterprise (SME) segment as financing for the segment further gains traction.
While banks are cautious in their lending amid a challenging economic environment, they are aware of the bright prospects of the SME business going forward.
With about 98.5% of all businesses in the country being SMEs, coupled with the fact that the SME real gross domestic product (GDP) growth has been outpacing the national GDP growth, there is good potential for the expansion of SME financing.
Malaysia’s SME real GDP growth of 6.6% per annum on average has consistently outperform the overall national GDP growth of 5.1%. The government further expects SMEs to contribute 41% to the national GDP by 2020. The country’s largest bank in terms of assets - Malayan Banking Bhd (Maybank) - is stepping up its SME business, in line with other banking groups in the country.
Malayan Banking Bhd head of community financial services Malaysia Datuk Hamirullah Boorhan tells StarBiz the bank is targeting a double-digit growth of around 21% in its SME segment financing this year, higher than the 14.9% growth it achieved in 2018.
“To achieve this growth, we will, among others, leverage on our capabilities of straight-through processing for loans application which provides greater convenience for our customers.
“We will also focus on developing existing and new customer relationships through data analytics,” he said.
Maybank, he noted, would continue its collaboration with Credit Guarantee Corporation (CGC) and Syarikat Jaminan Pembiayaan Perniagaan Bhd (SJPP) in financing product offerings. The bank’s SME loans currently constitute about 8% of its retail portfolio, Hamirullah said, adding that he believes it would remain a key segment given the importance of the SME industry within the overall economy of the country.
CIMB Group group commercial banking CEO Victor Lee Meng Teck
CIMB Group’s overall SME loan growth has been steady with 20% growth in 2018 and 17% in 2017.
Its CEO for group commercial banking, Victor Lee Meng Teck, said this year there has been an uptick in SME business expansion and investing activities. This has created a demand for credit and purchase of assets, further supported by a low inflation and attractive interest rates environment, he added. In line with this positive development, he said CIMB Bank has also been extending its unsecured (no collateral) loan facilities for SMEs with a good business model and growth potential. As such, Lee expects sustained loan growth for the bank’s SME segment in 2019.
“Overall, SME loans contribute more than 20% to the group’s revenue and we expect to grow this by at least 20%, given CIMB’s refreshed SME proposition for 2019, and its importance as a growth pillar in CIMB’s new mid-term growth plan, Forward23. Apart from our halal corridor proposition, we are also investing significantly in digital capabilities to make it easier and hassle-free for SMEs to access our products, so they can focus on running their businesses,” he said
Lee said the fastest growth in the SME industry comes from retail and general commerce, which entails all kinds of trading and service sectors. The group’s commercial and SME Banking businesses contributed more than 20% to CIMB Malaysia’s revenue in 2018. Lee said during the T18 period, the group recalibrated the regional commercial and SME business by significantly cleaning up on provisions and strengthening its foundations. “Hence, we are now ready to accelerate growth to further increase our contribution to Malaysia and the group’s revenue moving forward,” he added.
T18 is a four-year recalibration plan launched by CIMB Group in 2014.
Alliance Bank Malaysia Bhd executive vice president and head of group SME Ernest Kwong said the SME banking segment is a significant contributor to the bank’s loan portfolio, representing 25% of the bank’s asset books. The bank’s strength lies in helping SMEs to be successful with our various enterprise initiatives, including the BizSmart Challenge and proactive lending programmes, he noted.
“The success of our SME expansion strategy resulted in the segment contributing 24% of the group’s revenue for the nine months of financial year (FY) 2019.
“As at Dec 31, 2018, our SME loans grew 12% year-on-year versus the industry’s 0.1%,” Kwong said.
The bank has seen incremental increase in its SME loan growth at 8.1% and 8.2% respectively for FY2017 and FY2018.
For the nine months of FY2019, its SME loans growth stood at 12% year-on-year.
The compounded annual growth rate (CAGR) from FY2016 to FY2018 was at 8.2%.
“With the various SME banking initiatives which includes the expansion of our product programmes, improved processes, and enhanced training and development for our staffs, we will see an improvement in CAGR by the end of FY2019,” he added.
RHB Banking Group head of group business and transaction banking Jeffrey Ng said the bank targets to improve its loan growth performance this year, especially the small businesses under its retail SME sub-segment.
This sub-segment primarily focus on small SMEs with turnover less than RM35mil, he said.
“We are cautiously optimistic for 2019 and expect SME loan growth momentum to increase towards the second half of the year.
Overall, our business banking assets growth has been outpacing the industry for the past five years driven by our SME segment.
“Despite a challenging 2018, our SME segment grew by 7.1% whilst industry growth remain status quo. Over the last three years, we have managed to double our growth in this segment compared to the industry,” Ng noted.
He said the demand for SME financing is still there and the bank intends to continue reaching out to SMEs via workshops, educate them on financing and provide the available options for the relevant transactions.
Ng noted that he expect the bank’s retail SME segment to continue to be the growth engine with targeted double-digit year-on-year growth.
As part of the banking group’s five -year FIT22 strategy, it has identified the small business segment as its area of focus to drive growth.
“Under our five-year strategic plan, we have identified SMEs as a critical growth engine. We aim to be among the top three SME banks in Malaysia and grow our contribution to 20% of total group’s domestic loans by 2022,” he added.
RHB is in the midst of building a robust and connected SME ecosystem. This is to bring more value to customers while differentiating itself by focusing on customer journeys.
The banking group has been investing in digital and the agile way of working to continue to deliver simple, fast and seamless solutions to SMEs.
“Our motto will be ‘making things easier’ for SMEs. Over the last year, we have made it easier for SMEs to get financing through our SME Online Financing. Small business are able to apply financing up to RM300,000 on their own through our portal.
“Our relationship managers are also equipped with tablet based applications so that they can better advice SMEs on appropriate solutions for them through guided simulation.
“We also launched the RHB Reflex mobile app and enhanced our integrated e-solution ecosystem for SMEs and increased analytics value creation by 2.7 times year-on-year,” Ng said.
Under its SME e-solution, the bank collaborate with cloud based technology partners to offer point of sale, payroll, accounting and cash management solutions that are seamlessly connected to simplify SMEs operations, he said.
Alliance Bank’s Kwong said the bank’s strategy, among others, is to introduce innovative solutions that are fast, simple, responsive, and aligned to customers’ needs.
One of the initiatives it has is the Alliance Origination System (AOS), an automated loan origination system that simplifies the loan disbursement process for a best-in-class turnaround time.
This means businesses can now get their loans approved and disbursed faster, and with less hassle.
“We also continue to support SMEs with our proactive lending programmes, and full suite of products and solutions that a business requires for business growth. One of these is our Alliance@Work proposition.
“This proposition meets business owners’ enterprise needs by offering paperless onboarding for their employees at the work premises, and cash management and payroll solutions.
“It also provides our clients’ employees with mobile banking and mobile foreign remittance apps for banking convenience,” he said.
Apart from regular products extended by banks to SMEs, CIMB also offers unsecured loans programme for customers who are awaiting their tax refund, whereby financing is offered at a lower interest rate, with a flexible payment period and interest servicing up to six months, to help SMEs manage their cashflow better.
“We will continue to partner with government agencies to extend our lending to SMEs.
“For example, CIMB is currently the top three banks in partnership with Credit Guarantee Corporation in disbursing enterprise clean loans to SMEs.
“We also plan to announce further enhancements to our Halal Corridor proposition later in the year,” Lee noted.