KUALA LUMPUR: SME Bank is targeting a modest financing growth of RM400 million this year, compared with RM934 million recorded in 2020, as domestic economic activities continue to slow down due to the pandemic.
Group president and chief executive officer Aria Putera Ismail said the decline in financing growth is in line with weaker business sentiment amid prevailing uncertainties due to the Covid-19 pandemic.
“The widespread containment measures such as the movement control order (MCO) and international border closures have prompted a weak external demand environment as well as impacting the domestic economy,” he told Bernama in an e-mail interview.
“With the unprecedented economic crisis, Malaysia’s economy saw gross domestic product (GDP) shrinking 5.6% in 2020 compared with a positive growth of 4.3% in 2019.”
Aria said SME Bank, which focuses on financing small and medium enterprises (SMEs), has taken a direct hit as SMEs faced an almost 90% plunge in sales during the initial containment period. This was followed by a liquidity crisis due to extreme cash flow constraints and disruptions in supply chains, he noted.
“Moving forward, we expect the recovery of SMEs and the Malaysian economy for this year and 2022 to be gradual. This will be supported by the easing of restrictions and improvement in global trade, coupled with the continued policy support, stimulus assistance and, more importantly, the success of the Covid-19 inoculation programme,” he said.
Asked whether there is an increase in non-performing loans (NPL), Aria noted that the bank’s gross impaired ratio stood at 16% as at Dec 31, 2020.
Taking into account the impact of the pandemic and the challenging business environment, the bank will strive its best to improve or at least maintain it at that level, he said.
Aria said SME Bank has been carefully managing its balance sheet and asset quality throughout this unprecedented period, which has provided greater leeway for the bank to grow its business with sufficient cushion against potential risks and challenges that may lie ahead.
“We have strategies in place to manage the impact of the MCO and shall do our best to improve our gross impaired ratio in 2021. This will be done through a detailed combing exercise of our existing portfolio and proactively undertake restructuring and rescheduling (R&R) exercise on affected financing to address customers’ payment constraints while at the same time carefully onboarding quality customers,” he said.
Meanwhile, on SME Bank’s maiden sustainability sukuk wakalah issuance of RM500 million, which registered a final order of RM1.78 billion in its book-building exercise, translating into 3.56 times bid-to-cover, Aria said that demand for sustainability-linked bonds will continue to gain traction as supply is still limited.
“With GDP growth in 2021 likely supported by export-oriented industries that are benefitting from the reopening of advanced economies, notwithstanding the challenging domestic macroeconomic environment at present, the bank views that Malaysia’s economy is poised for recovery in the medium term.
“As such, we are positioning ourselves to be in an advantaged position to not only accelerate our growth but at the same time fulfil financial as well as development needs by using the proceeds from this sukuk issuance,” he said.
Aria revealed that SME Bank has been incorporating environmental, social and governance (ESG) elements in carrying out its mandate since the bank’s establishment and that the ESG sukuk issuance is a part of the bank’s overall ESG journey which will enable SME Bank to offer more innovative financing solutions for SMEs.
“We will also continue to intervene as a supportive partner to ensure the SMEs’ success in becoming the nation’s engine of growth that contributes positively to the GDP and creating employment,” he said.
In pursuing the ESG initiative, SME Bank will incorporate sustainable development in all aspects of its operations, not only in the financing aspect but also development that meets the needs of the present without compromising the ability of future generations to fulfil their own needs, said Aria.