SMEs
new credit source
Business lending on the
rise with roll-out of ETP jobs
PETALING JAYA: With consumer loans under pressure from the new
lending guidelines, banks are tapping a new source of credit growth in lending
to small and medium enterprises (SMEs).
Business banking is the next trend to watch as banks get prepared to
finance the smaller jobs under the Economic Transformation Programme (ETP) and contract financing by SMEs.
Consumer loans will still be the biggest contributor to income, said
Affin Bank chief
corporate strategist Nazlee Khalifah. But SME lending will be more prominent in
almost all banks portfolio at least for the next three to five years under ETP
jobs and contract financing.
Affin is looking at more SMEs to beef up our contract financing
business, Nazlee told StarBiz.
Previously, we were focussing on corporate which is the safer side
of lending. We were in a recovery stage then. But now that we are on more
stable footing, we can be more aggressive and take a bit more risk.
The margins in business banking are slightly higher than in
corporate banking and help to counter the fall in consumer margins.
The jobs involved are mainly small to mid-sized of around RM10mil
to RM20mil each. The source of payment is secured and usually prompt upon
completion of the job, as specified. These companies are mainly assessed based
on their capability to perform the jobs, and are likely to be already known to
the banks.
The consumer loans market has become crowded, said Pong Teng Siew, head of research at Interpac Securities. The
property market may experience a peak, after which it may slow down or flatten
off.
Business loans are more capital intensive - the capital allocated to
support such lending is usually higher than for consumer loans. They are also
more difficult to tap than consumer loans.
OCBC Bank sees the
way forward not just in the building up its business banking business - the
bank is said to be beefing up its contract financing unit - but in drawing up a
diversified portfolio. Banks should aim to build diversified portfolios as the
revenue prospects and risk profiles of different loan/business segments can
counter-balance one another, said OCBC Bank Malaysia country chief risk officer
Choo Yee Kwan.
As an example, corporate lending and project financing are largely
cash flow-based whilst lending to the small and medium-sized businesses are
mainly on secured basis.
Within consumer lending, residential mortgage financing is a
secured portfolio whilst personal financing and cards are largely extended on
an unsecured basis.
To complement corporate lending, project/contract financing, SME and
consumer lending, banks will add on growing opportunities in treasury business,
investment banking, wealth management plus other structured products for both
individuals and businesses.
It will bring additional opportunities if banks are able to
distribute bancassurance/ unit trust products
and offer Islamic financing products and services.
Banks that have regional networks would be able to provide their
customers with cross-border support, particularly in foreign locations where
the bank has subsidiaries, branches or offices on the ground.
Choo: ‘A
diversification approach to loan exposures/ revenue opportunities avoids
portfolio concentration risks.’
A diversification approach to loan exposures/revenue opportunities
avoids portfolio concentration risks, Choo said.
Within consumer banking, there could be some diversification
between residential mortgage lending (on secured basis but there has been
spread compression in the industry) and personal loans which are typically
unsecured but the returns currently appear to be better.
However, growth may not be a priority anymore as we could be in
the stage of the credit cycle which involves margin preservation and monitoring
of asset quality, said an analyst from a foreign research house.
Other areas of credit growth involve ways to improve non-interest
income which are basically non-capital intensive revenue opportunities. Foreign
exchange is an obvious area for hedging opportunities, the analyst said
Source : The Star
Date : 21 May 2012
Today's Pick (21/05/12/086/780)
No comments:
Post a Comment