Banks in Singapore still seeking to grow SME loan book

MR CHOONG WAI HONG (above), head of Maybank's community financial services.
MR CHOONG WAI HONG (above), head of Maybank's community financial services. PHOTOS: BUSINESS TIMES, UOB
MR ERIC THAM (above), UOB's commercial banking head.
MR ERIC THAM (above), UOB's commercial banking head.

They make big push to nurture segment amid business headwinds and slower growth

A string of recent announcements by banks here underlines the importance they attach to the small and medium-sized enterprise (SME) segment, even as SME loan demand looks set to moderate this year.

SMEs are vital to the local economy so any slowdown amid prevailing business headwinds will be only temporary. And banks are already acting to secure their market positions ahead of this inevitable recovery.

Just two weeks ago, Maybank Singapore said it wants to "aggressively" target the retail SME segment - its term for small businesses with revenues of up to $20 million - and grow its loan book in the segment by 40 per cent this year.

It is a bold statement, given the choppy operating environment for companies here, but the bank's community financial services head Choong Wai Hong said the push is both timely and necessary.

"Sure, the growth and trade conditions are in a bit of a struggle now, but the SMEs still contribute to over half of gross domestic product and employment in Singapore," he told The Straits Times. "That tells us that the SMEs here are still thriving, or they can with enough resources to grow in a high-cost environment.

SECTOR STILL THRIVING AND CONTRIBUTING

SMEs still contribute to over half of gross domestic product and employment in Singapore. That tells us that the SMEs here are still thriving, or they can with enough resources to grow in a high-cost environment.

MR CHOONG WAI HONG, head of Maybank's community financial services.

SUPPORTING THE BACKBONE OF THE ECONOMY

This is the time for us to show that we are a long-term partner which stays with the SMEs through thick and thin. Nine in 10 companies in Singapore are SMEs - they are the backbone of the economy. We intend to stay strong in this segment and do it well.

MR ERIC THAM, UOB's commercial banking head.

"There are still good businesses out there even in this challenging period, and SME loans are a very viable business if properly managed."

Maybank expects the rapid growth of retail SME loans - first rolled out here only two years ago - to complement its commercial banking serving larger corporates.

"If we nurture the SMEs enough, they will go into our commercial banking pipeline. We've been in Singapore for 55 years, and SMEs are a big piece of the action here so we are not going to miss it (the opportunity)," he said.

These ambitions may yet be tempered by reality. Singapore's economic growth last year slipped to its slowest pace since 2009 at 2 per cent, with falling commodity prices and labour woes straining SMEs. It was no surprise total business loans fell 3.5 per cent year on year in January to $357.34 billion, Monetary Authority of Singapore data showed.

From the viewpoint of United Overseas Bank, which commands the highest SME banking share here at around 30 per cent, the big picture is not without wrinkles.

UOB commercial banking head Eric Tham expects SME loan growth to be a low- to mid-single digit this year, while some segments may show credit quality stress.

"The macroeconomic conditions are not rosy, and there are more losers than winners out there now. SMEs in sectors such as construction, trade and, of course, oil and gas may face cashflow issues," he said. "We are watching closely and helping them to restructure their financing if necessary."

The rising level of non-performing loans in the banking system was a niggling issue for Singapore banks last year. But that does not mean UOB will slow down on SME loans.

Mr Tham said: "We are still looking for companies with good management and business fundamentals to support. Our SME loan book, with an even mix of small and mid- size SMEs, is diversified enough for it to be resilient through the downturn. We're not worried."

He added: "This is the time for us to show that we are a long-term partner which stays with the SMEs through thick and thin. Nine in 10 companies in Singapore are SMEs - they are the backbone of the economy. We intend to stay strong in this segment and do it well."

With SME loans still high on their agenda, banks are tabling new strategies and products to provide them with an edge in the competition.

UOB has shown an increased focus on supporting the emerging sector of technology start-ups. It partnered Temasek Holdings in July to offer US$500 million (S$685 million) in venture debt to these growth companies, and a crowdfunding platform was launched this month to create more traction in the segment.

DBS Bank, which serves around 100,000 SMEs here, has turned its focus to helping SMEs upgrade capabilities. It said earlier this month that it will extend its bridging loans to SMEs before the government capability grants they apply for arrive.

Back at Maybank, a new product that bundles business mortgage with working capital loans in a single package has just been launched, Mr Choong said.

The banks' push to grow their SME loans is welcome, Singapore Business Federation chief executive Ho Meng Kit said.

"The business headwinds have resulted in some signs of stress, such as slower payment to suppliers. But across the SME sector, many are still looking to grow, so there is still a need for capital to be filled.

"I'm glad to see banks eager to support businesses, ideally following them as they grow beyond the shores of Singapore."

A version of this article appeared in the print edition of The Straits Times on March 28, 2016, with the headline 'Banks in S'pore still seeking to grow SME loan book'. Print Edition | Subscribe