As the end of September approaches, companies that had caught a breather through the loan moratorium will be counting down the days to when they will have to resume their loan repayments.
With business in several sectors yet to fully recover, some may find it difficult to cope with the continuation of their financial obligations. Industry leaders have noted that a significant portion of SMEs are still struggling with tight cash flows and are looking to further reduce headcounts or end their business.
The severity of the situation remains uncertain. While there are grouses from the ground that SMEs are in need of aid, they do not correspond to the number of businesses coming forward to seek help from the banks regarding the end of the automatic loan moratorium.
Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM) SME committee chairman Koong Lin Loong finds this quite unsettling
“The response from SMEs about the end-September deadline has been quite calm out there. But we feel that this doesn’t tally with what we have heard from the ground, ” he says.
In a survey carried out in mid-September, Koong says about 70% of respondents have said that they would need to extend their loan moratorium.
However, 44% of those who need the extension have yet to contact their banks.
According to Bank Negara, there are about 400,000 SME accounts that have utilised the full six-months moratorium. However, this is not reflective of the number of companies involved as some firms have multiple accounts. The central bank had mentioned that not more than 20% of those facing problems have contacted the banks.
“When we did our survey last month, we asked companies if they would face problems should the moratorium not be extended, and 42.8% said yes. So that’s almost 43% that needs the extension.
“Assuming that half of the 400,000 accounts don’t have problems paying back their loans, that means about 200,000 accounts will need some kind of extension, either through rescheduling or restructuring. If not more than 20% of these are problematic and contacted banks, let’s say 15%, that’s 30,000 accounts, ” shares Koong.
As at Sept 11, the value of the loan moratorium utilised by the business sector is estimated at RM31.4bil, about 35% of total loan value under the moratorium.
Bank Negara and various other banking institutions have been reminding borrowers to contact their banks to discuss any difficulty in their repayments post-moratorium. Bankers say they remain committed to providing repayment flexibility and are working to contact borrowers who may need assistance. As at Sept 11, banks have contacted more than two million borrowers, including individuals and SMEs, to offer them loan repayment assistance.
“We think that the banks should contact the borrowers. Banks have an insight to their cash flows so they can estimate which companies need help. But SMEs also need to take the initiative to call their banks. In the quick survey this month, 44% haven’t contacted their banks even though they need the extension.
“So the awareness is not there. But I think they are also waiting for the last minute, or some only contacted the bank briefly. Banks have repeatedly asked to contact them and they only require minimum documentation like your management account or cash flow statement, ” says Koong.
He adds that there are also some business owners who are not as competent with their cash flow budgeting and may not know whether they have enough cash flow for the next six to 12 months, which makes them hesitant in dealing with the banks.
In this respect, SME Association of Malaysia president Datuk Michael Kang points out that the recent announcement on the targeted wage subsidy programme will enable more businesses to have a better grasp of their cash flow for the next few months and aid them with planning their loan repayments.“I think many SMEs are still waiting and wondering what to do after the moratorium. But this announcement will help them to have a better idea of their cash flow, how they can plan for the next few months and what they can afford to pay in installment. This will make it easier for them to talk to the banks, especially those that need to reschedule and restructure their loans after the automatic loan moratorium ends, ” says Kang.
Hurdles at the counter
To be sure, there have been many companies that have contacted their lenders and some of them have encountered challenges with the banks. They include offers to take up short-term loans to cover the payments due, higher rates for extended loans and cumbersome documentation.
Notably, procedures vary from bank to bank and the negotiations will rely on the experience of the officers in charge.
Additionally, there have been complaints from SMEs that they were not allowed to extend their moratorium.
“Actually the banks are not extending the moratorium. It ends on Sept 30. After that, they are actually rescheduling and restructuring their loans to make it feasible to pay monthly. So SMEs also misunderstand this.
“The extension of moratorium is only for individuals that have lost their income or jobs, or their instalment amount is reduced in accordance to their salary reduction. For SMEs, the extension is on a case-by-case basis, ” explains Koong.
To be fair, there have also been some good feedback from SMEs, whereby banks have allowed them to fix a certain monthly payment that is manageable for them.
Consulting firm EY highlights that financial restructuring is dependent on the financial forecast of a business, which in turn determines the level of debt that the business can afford.
Forecasting is both information and action-driven and centres on where the business intends to be.
However, as the market environment remains uncertain and volatile, the accuracy of financial forecasting becomes challenging, impacting the ability of businesses to restructure their debts effectively.In a recent live poll conducted during an EY webinar on “Turnaround and restructuring: the banker’s perspective”, 77% of the respondents shared that in the next 12 months, business profitability is expected to improve but unlikely to be at pre-Covid levels.
The poll findings also reveal that respondents recognise the need to fundamentally change their business model to reflect the current market environment (77%) and prioritise costs and revenue optimisation in order to manage business and debt obligations in the next 12 to 18 months (68%).
However, nearly half (43%) of the respondents do not think or are uncertain that the debt level they are carrying is sustainable, suggesting businesses may need to restructure their debts once the loan moratorium ends.
“A lot of SMEs make the mistake of waiting for the banks to contact them first. We are worried, because by Oct 1, the demand letters will definitely come. And we foresee that there will be a mad rush then. There are also a lot of SMEs that owe a few banks, ” Koong adds.
He urges SMEs to take advantage of banks’ various programmes and initiatives such as Bank Negara’s ongoing roadshows which offer on-site consulting services to help them better prepare and restructure their repayments to ensure that they are in a position to sustain and grow their operations.
Additionally, the Agensi Kaunseling dan Pengurusan Kredit (AKPK), an agency under Bank Negara, offers specialised solutions to help SMEs manage their debt and promote sound financial management practices.
SMEs facing issues with loan repayments can approach AKPK for help in working out an appropriate repayment plan with their banks.
“At the end of the day, bankers are bankers. They only lend you the money.
“But SMEs must be aware of the policies and programmes and be proactive for their own good, ” says Koong.
Source: https://www.thestar.com.my/business/business-news/2020/09/26/keeping-up-with-money-matters