PETALING JAYA: Businesses may find it harder to secure financing as banks are likely to turn more prudent in approving new loans, particularly for the small and medium enterprises (SMEs), warns AmBank Group chief economist Anthony Dass(pic).
At a time when more companies are facing cash flow constraints amid the somber business sentiment, Dass said that banks would be driven to mitigate risks given the challenging economic outlook ahead.
“Banks could practice more prudence in dishing out new loans, including working capital lines of credit that are necessary to keep businesses afloat. This could have a bigger impact especially for businesses in high-risk sectors.
“In 2019, business loans grew at a slower rate than the year before. As for this year, with sentiment turning worse and the impact of the novel coronavirus (Covid-19) pandemic, the loans growth could be further affected, ” he told StarBiz.
Dass was also asked whether the business loan guarantee schemes introduced in the recently announced economic stimulus package would encourage more banks to approve new loans for local companies.
In response to this, he said that banks will still need to do their own due diligence regardless of the government’s guarantee.
“The problem is many of our SMEs have no proper documentation.
“This includes under-reporting revenue and due to such problems, banks may not be able to give the companies the working capital loans they have asked for.
“Imagine this, if a company which has under-declared revenue for years, asks for a big loan amount, how can the banks be convinced that the company would be able to repay?” said Dass.
On March 27, as part of the RM250bil economic stimulus package, Prime Minister Tan Sri Muhyiddin Yassin announced that Danajamin Nasional Bhd will provide RM50bil in loan guarantees to struggling companies seeking to raise funds for working capital.
For perspective, Danajamin is jointly owned by the Minister of Finance Incorporated and Credit Guarantee Corporation Malaysia Bhd.
In addition, Syarikat Jaminan Pembiayaan Perniagaan will also provide RM5bil worth of guarantees for SMEs that face difficulties in obtaining loans.
Echoing a similar view with Dass, a banking analyst told StarBiz that banks could be more cautious in approving new business loans ahead as warning calls for a recession intensify.
“However, I do not think that banks will be more restricted in their loan approvals, ” he said.
When asked to comment about the health of the domestic banking sector, the analyst said there is enough liquidity across the sector for now, amid fears of a sharp economic slowdown moving forward.
“If the liquidity of banks decline in the future, banks with lower liquidity might have to borrow money from other banks and this could lead to a higher interbank interest rate or the Kuala Lumpur Interbank Offered Rate (KLIBOR), ” he said.
Source : https://www.thestar.com.my/business/business-news/2020/03/31/banks-expected-to-be-more-prudent