SME
banking business on uptrend
PETALING JAYA: Despite
anticipation of slower overall loan growth this year, the small and medium
enterprise (SME) banking business is gaining strong momentum with analysts
expecting double-digit growth in SME loans this year.More banks are jumping on the bandwagon in offering SME products and services to boost their earnings and carve a niche in this fast-growing segment.
Alliance Research banking analyst Cheah King Yoong told StarBizWeek that he was positive of the SME banking business and expected strong SME loans growth this year.
“We expect a double-digit SME loan growth this year. Apart from the Economic Transformation Programme (ETP) related loans, many banks are expecting SME loans to be one of their key loan drivers for this year. We believe that banks are putting more focus on growing this particular loan segment.
“Another plus point is that the interest margin of SME loans are mostly higher than retail loans such as mortgage and hire-purchase loans, although the default risk of SME loans could accelerate if the economy were to deteriorate unexpectedly,'' he added.
Besides the ETP projects, Cheah said SME loan growth this year would also be driven by strong domestic consumer spending, continued resilient intra-Asean regional trade and gradual recovery in the US economy.
Concurring with Cheah, Malaysian Rating Corp Bhd chief economist Nor Zahidi Alias said banks were interested in higher margin lending, especially if there was collateral or comfort in the form of credit guarantees or the special funds for SMEs administered by the government.
He added SMEs also had a huge demand for trade finance which was attractive to banks as it did not weigh much on banks' capital ratios. He said that although SME loans were still relatively a small proportion of bank loan books, given its high growth, its contribution to banks' business was expected to rise moving forward.
Nor Zahidi expected SME loan growth to continue in double digits this year despite slower overall loan growth this year on the back of a tighter credit environment. He attributed this growth to the various government financing programmes which, he added would continue to support SME lending this year.
Based on Bank Negara's quarterly bulletin for the third quarter of 2011, loan applications by SMEs (including loans to individual businesses) registered an annual growth of 25.2% while loan approvals rose by 27.7% year-on-year in the third quarter.
In 2010, SME loan applications for the fourth quarter grew by 14.9% while loan approvals posted an annual growth of 13.5%. Loan approvals for the SMEs account for 19.3% out of total loan approvals for the third quarter of 2011.
OCBC Bank (M) Bhd emerging business head Wong Chee Seng said its SME banking had always been a forerunner in the market and would continue to support its growth going into 2012.
Last year, he said the bank granted more than RM6bil in loans to the SMEs, mainly dominated by the domestic businesses of the wholesale and retail sector. In terms of income, he added SME banking continued to contribute a high double-digit percentage to the business banking division as well as over 15% of the bank-wide total income levels.
“For this year, we expect a similar growth progression for revenue and loans approvals for the SME sector to improve over last year. We expect SME loan outstanding growth in the region of 25% versus 20% in 2011 due to the traction that we have gained last year and the continued momentum in new customer acquisitions.
“We have also tied-up with the Credit Guarantee Corp Malaysia (CGC) on the Portfolio Guarantee scheme to further solidify our position as the largest supporter of SMEs among the foreign banks in Malaysia. Compared to traditional CGC schemes, the eligibility criteria for the programme are preset to deliver a significant reduction in turnaround time for CGC guarantee approval, allowing more room for efficiency,'' Wong added.
Source : The Star Date : 21 April 2012
afternoon
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