RAM Business Confidence Index for 3Q sinks as worries weigh

RAM Ratings said on Monday this level of 33.7 was substantially below the neutral point of 50, and reflected the disruptions plaguing small businesses amid the Covid-19 pandemic.

KUALA LUMPUR: The overall RAM Business Confidence Index (RAM BCI) for the third quarter (3Q 2020), based on an online survey conducted between July and August, hit a low of 33.7 as businesses cited weak economic conditions and uncertainties.

RAM Ratings said on Monday this level of 33.7 was substantially below the neutral point of 50, and reflected the disruptions plaguing small businesses amid the Covid-19 pandemic.

“Almost 90% of the survey’s respondents cited weak economic conditions as their most significant challenge in the next three months, ” it said in a statement.

It also said the latest RAM Business Confidence Survey indicated small and medium enterprises (SMEs) and micro businesses still need supportive policies to stay afloat.

The reasons being the economy remains fragile, with uncertain prospects through the next three months.

RAM Ratings pointed out the government has made commendable efforts to assist SMEs and microenterprises during the pandemic.

It cited the efforts included the loan moratorium, which has been a highly sought-after financial relief; some 86% of the survey respondents have taken up this offer.

Of these, almost 90% need an extension beyond the expiry date of Sept 30,2020, as cashflows remain tight.

More than half of the firms surveyed said that without an extension, they would face negative repercussions of either having to scale down or cease operations, or even default on their loan.

Most of the respondents also value wage subsidies (68%), loan subsidies (62%) and grants (66%) as aids to keep themselves afloat.

RAM Ratings said a targeted approach by the government, based on firm size and sector, is the best way to assist firms.

“The BCI survey suggests that the extension of the loan moratorium is most useful to bigger SMEs as they may have heftier loan commitments; up to 85% of larger SMEs needed an extension, as opposed to 69% of microenterprises.

“However, the impact of not having an extension is more detrimental to the latter. Some 20% of microenterprises stated they would have to shutter their operations, compared to just 8% of SMEs, ” it said.

Based on the findings of the survey, RAM Ratings said in terms of the type of assistance needed, a respective 79% and 75% of medium and small firms indicated the need for wage subsidies to continue, as opposed to 51% of microenterprises.

In contrast, microenterprises expressed their preference for subsidised loan schemes.

“Amid the gloom, a silver lining emerges in that our survey reveals the resilience of SMEs and microenterprises.

“Even when prospects are bleak and challenges appear daunting, the majority of firms surveyed wanted to keep their businesses at status quo instead of scaling down through the next three months.

“It also indicates that businesses are hopeful demand will eventually recover in the medium term. To this end, we urge policymakers to keep engaging with SMEs and microenterprises.

“They need to understand the specific requirements of and provide the necessary targeted financial aid to SMEs and microenterprises – the backbone of Malaysia’s economy - to tide them over the current crisis, ” RAM Ratings said.