Last week, I came across some newspaper articles addressing the difficulty of Small and Medium Enterprises (SMEs) in obtaining bank loans that I find oddly confusing.

Bank Negara commented that banks are too cautious even after the central bank assured that there is ample liquidity in the banking sector and capacity to lend. While Bank Negara had led the way by lowering the overnight policy rate and statutory reserve requirement to lower the cost of funds, many banks are not releasing their cautious “over” position. It was also reported that banks are already reviewing the credit risk profile of existing loans and determining whether these SMEs can still meet the payment schedule, or if their assessment shows a high default risk profile, banks will reduce the easily or in certain serious cases. cases, calling the bank the facility demanding immediate reimbursement. This action will contribute to the global economic slowdown and financial crisis.

The Association of Banks of Malaysia (ABM) responded to this comment that the perception is inaccurate. According to the ABM president, as part of ongoing loan reviews, banks will need to assess and decide whether credit lines granted to customers are fully utilized or reduced. This is to allow for a better impact on other lending activities. He has also commented that there has been a general increase in the approval of loans to SMEs as of December 31, 2008 compared to the previous year.

The comments for these news articles are all given by leaders of their respective organizations. I did some extensive informal finding out of some grassroots employees, mainly loan officers from local and foreign banks. Their general comments are as follows:

1. They have been ordered by top management to freeze most SME loan applications since mid-2008.
2. Warranty requirements are extremely unrealistic. Example, one-for-one cash collateral (say fixed deposit) for facility (say overdraft or term loans).
3. Commercial lines such as bank guarantees and letters of credit are no longer easily accepted by banks, even those lines issued by internationally renowned financial institutions.
4. Banks are moving into retail loans such as credit cards, personal loans, home loans, and auto loans. This is because the amounts are much lower and their risk exposures are spread over a broader customer base.

I recently had dinner with 2 very interesting personalities, mainly because of the entities that work for them. Being an “outsider”, I heard and appreciated the opinions of these two guys, both of whom are in middle management at their respective employers. One of them works for a real estate developer while the other works in a bank as a risk analyst, in charge of recommending whether a loan can be approved.

From the point of view of the business entity, banks are supposed to provide “umbrellas when it rains.” My friend from the commercial entity told me that in reality the banks give credit when they do not require it, and withdraw the facilities when they need them most. The banks do not support them in their difficult moments. In fact, the banks created more problems for them by reducing credit lines, demanding immediate loan repayments, and threatening to declare default if their demands are not met.

My friend from the bank responded immediately and commented that banks also have a business drive and they have to protect themselves to ensure survival. A simple misconception is that your risk assessment will result in a loan default. There are too many experiences within the banking industry of loans approved to seemingly good companies becoming delinquent due to many unscrupulous businessmen using the funds for their personal gain to the detriment of good companies. Therefore, banks must be very cautious when reviewing loan applications to minimize the risk of default.

From this simple dinner, I was able to appreciate that regardless of whether it is a fact or a perception that SMEs find it difficult to obtain bank loans, the bottom line is that SMEs and banks have their own roles to play within the world. business, for survival, profitability and accountability to stakeholders.