| In the past week, I came across a few newspaper | | | | Credits are no longer readily accepted by the banks, |
| articles addressing the issue about the difficulty for | | | | even those lines issued by international renowned |
| Small and Medium Enterprises (SME's) to obtain bank | | | | financial institutions. |
| loans that I find interestingly confusing. | | | | 4. Banks are moving toward retail loans such as credit |
| Bank Negara commented that banks are over | | | | cards, personal loans, housing loans and car loans. This |
| cautious even after the central bank gave assurance | | | | is because the amounts are much lower and their risk |
| that ample liquidity in the banking sector and have the | | | | exposures are spread over a wider customer base. |
| ability to lend. While Bank Negara had led the move by | | | | Recently, I had dinner with 2 very interesting |
| cutting the overnight policy rate and statutory reserve | | | | personalities, mainly due to the entities their working for. |
| requirement for reduced cost of funds, many banks | | | | Being an "outsider", I got to hear and appreciate views |
| are not releasing their "over" cautious position. It was | | | | from both these guys, both are in the middle |
| also reported that banks are already reviewing credit | | | | management in their respective employers. One of |
| risk profile of existing loans and determine if these | | | | them is working for a property developer while the |
| SME companies can still satisfy the repayment | | | | other person works in a bank as a risk analyst, in |
| schedule, or if their assessment shows a high default | | | | charge with recommending if a loan can be approved. |
| risk profile, the banks will either reduce the facility or in | | | | From the commercial entity view point, banks are |
| certain serious cases, calling bank the facility by | | | | supposed to provide "umbrella when it rains". My friend |
| demanding immediate repayment. This action will | | | | from the commercial entity commented that in actual |
| contribute to economic slowdown and financial crisis, | | | | fact, banks give loan when not required, and withdraw |
| globally. | | | | the facilities when they need these facilities most. |
| The Association of Banks in Malaysia (ABM) | | | | Banks do not support them in their difficult times. In |
| responded to this comment that the perception is | | | | fact, banks created more problems for them by |
| inaccurate. According to ABM's chairman, as part of | | | | reducing credit lines, demanding immediate loan |
| the ongoing loan reviews, banks will need to assess | | | | repayments, and threatening to call for default if their |
| and decide if credit lines given to the customers are | | | | demands are not met. |
| fully utilized or reduced. This is to allow better impact | | | | My friend from the bank immediately responded, |
| on other lending activities. He has also commented that | | | | commenting that banks are also commercially driven, |
| there has been an overall increase in SME loans being | | | | and that they have to protect themselves to ensure |
| approved at 31 December 2008 as compared to the | | | | survival. A simple error is their risk assessment will give |
| previous year. | | | | rise to loan default. There are too many experiences |
| Comments from these newspaper articles are all | | | | within the banking industry that loans approved to |
| given by leaders of their respective organization. I did | | | | seeming good companies became delinquent due to |
| some extended informal findings from some rank and | | | | many unscrupulous businessmen who use the funds |
| file employees, mainly loan officers from both local and | | | | for their personal benefits at the detriment of the good |
| foreign banks. Their comments in general are as | | | | companies. Therefore, the banks have to be very |
| follows:- | | | | cautious when reviewing loan applications to minimize |
| | | | the default risk. |
| 1. They received orders from higher management to | | | | From this simple dinner, I got to appreciate that |
| freeze most loan application from SME's since the | | | | regardless whether it is fact or perception that SME's |
| middle of 2008. | | | | are finding it hard to obtain bank loans, the bottom line |
| 2. Collateral requirements are extremely unrealistic. | | | | is that SME's and banks have their own roles to play |
| Example, one-for-one cash collateral (say fixed | | | | within the commercial world, for survivability, profitability |
| deposit) for the facility (say overdraft or term loans). | | | | and accountability to interested parties. |
| 3. Trade lines such as bank guarantees and Letter of | | | | |