PETALING JAYA: A total of 98% of AmBank Group’s small and medium enterprise (SME) clients survived the Covid-19 pandemic and the segment continues to be one of the main growth engines for the lender despite the increasing challenges in the business environment.
AmBank group managing director of business banking Christopher Yap said comparing data from March 2020 – which was roughly when the pandemic started in the country – with data from March this year, there was a 98.4% survival rate within the banking group’s SME base.
“Such rates may differ from time to time, depending on repayment assistance offered, customers’ business models and market dynamics, which we continue to monitor closely,” Yap told StarBiz.
According to him, AmBank’s intention is to reduce failure rates among the SMEs “by going beyond financing”.
“As an SME-focused bank, we are conscious of the need for SMEs to accelerate the adoption of digitalisation. Development support and relevant solutions were provided to SMEs looking to adopt digitalisation,” he pointed out.
SMEs have been said to be one of the largest casualties of the Covid-19 pandemic which had forced many smaller businesses to fold up due to prolonged lockdowns.
Yap said while the road ahead would continue to be challenging, SMEs that have adopted the Fourth Industrial Revolution also known as IR 4.0, and digitalisation would have an upper hand in facing the challenges.
“Malaysia is moving towards gradual economic recovery, underpinned by the transition towards endemicity as well as the reopening of international borders.
“At the same time, we continue to see geopolitical instability, supply chain disruptions, financial market volatilities from the tightening of monetary policies, and a potential global slowdown.
“To this end, while the SME segment will benefit from the reopening of borders and the resumption of economic activities, rising costs, labour challenges and an unstable environment are factors that are expected to contribute to the steep climb of recovery and rebound for SMEs,” Yap said.
That said, he noted that prospects for the SME segment remained encouraging.
“Malaysia recorded a growth of 3.1% in 2021, compared with a contraction of 5.6% in 2020 due to the pandemic. It is a sharp rebound, and we are expecting Malaysia’s economy to grow more than 6% in 2022, that is double of 2021’s growth,” Yap said.
Yap noted that last year, five states had recorded higher growth than the country’s overall growth.
“This was led by Penang with 6.8%, we expect the Northern Corridor and Klang Valley to lead the way in growth and we will be looking into shifting resources to focus on these locations but of course, we will pay significant attention to other locations too,” Yap said.
On SME non-performing loans (NPLs), he said this was not a major issue for the group.
“NPLs were down to 2.62% as at March compared with 2.93% two years ago.
“The definition of SMEs is very diverse. There are sole proprietors/partnerships, small SMEs with annual turnovers of less than RM10mil, medium SMEs ranging between RM10mil to RM50mil and large SMEs with RM50mil above.
“As far as the NPL numbers are concerned, if you study the NPL concentration, a big chunk of the NPLs come from small and relatively new vintage companies with less cash reserves,” Yap said, adding that the NPLs for medium and large SMEs were low.
He pointed out that AmBank’s SME loans grew by nearly 9.2% on a year-on-year (y-o-y) basis in the financial year ended March 31, 2022 (FY22), reflecting an improved outlook.
“We are looking at a growth rate of at least 1.5 times of the country’s growth, if not two times, we are optimistic,” he added.
AmBank’s SME loan book as of March stood at RM24.9bil.
Yap said with 97.4% of business establishments in Malaysia comprising SMEs in 2021, the fact that SMEs were the backbone of Malaysia’s economy was undeniable.
“SMEs are a manufacturing powerhouse, contributing 34.5% of Malaysia’s gross domestic product (GDP) in 2021.
“In fact, SMEs are projected to contribute 45% of Malaysia’s GDP by 2025,” he added.
On the topical issue of environmental, social, and governance (ESG), Yap admits that compliance is vital for any business given the critical role it plays in achieving investor confidence.
“ESG is no longer a ‘nice to have’ but a ‘must-have’ in any company’s business and operational philosophy,” he said.
According to him, 95% of the lender’s new financing disbursements in FY22 were low-risk and ESG-friendly, with more than RM596mil in green loans approved.
“We have a strategic plan in place to help our clients that fall under the remaining 5%, to ensure that they meet the required ESG standards.
“Overall, there is still a large gap in terms of ESG adoption among SMEs.
“The reality is that SMEs are very bottom-line focused and see ESG as a luxury rather than a necessity.”
However, he says if SMEs do not adopt ESG in the long-run, it will cost them, as more and more of their clients, lenders, regulators and potential investors demand ESG-compliance.
“It could cause them to lose business opportunities in the future.”
Meanwhile, Yap said that there has been no change in terms of the bank’s lending requirements, post-pandemic.
“We are dedicating more resources to grow select geographical areas and segments.
“The goal is to keep the credit channel to the real economy open, as best as we can.”
Yap said the lender’s aim was to continue doing more to help SMEs grow and succeed by understanding their unique needs and providing value-added services such as bespoke business advice and guidance as well as practical business support and more.
“Our perspective is that we are here to support this crucial group of entrepreneurs and businesses as we kickstart the economy after two years of struggling through the pandemic.”
On partnerships that the lender is working on to help more SMEs come into fruition, Yap said AmBank is, among others, forming partnerships with a few developers in the Klang Valley and Penang, to develop large tracts of industrial estate.
“For example, in the northern corridor we see significant demand to upgrade manufacturing facilities in the electronic and electrical sector and its supply chain industries.
“We are also seeing a boom in eCommerce warehousing in Klang Valley to cater for last mile delivery services.
“These are partnerships we are working on with industrial park developers,” he said.
According to Yap, the bank is also developing partnerships with equity crowdfunding partners to provide a mix of debt financing from the bank, and equity financing through third-party equity financiers for some of its clients.
“We also believe that education and development play an important role in contributing to the growth of a company or business.
“Through the AmBank BizClub, we have engaged more than 12,000 SMEs to provide education, training and networking opportunities to help businesses scale up,” he said.