SMEs fear big banks may lose 'small' touch

AS LOCAL banks move to get bigger by buying smaller rivals in the current phase of banking consolidation, one group of customers - the SMEs - are watching on warily.


SMEs, or small and medium enterprises, are worried that with fewer smaller banks left in the country, it may become more difficult for them to get loans to start or grow their businesses.

SMEs like to go to smaller banks when in need of loans as these are perceived to value them more.

Smaller banks tend to process their applications faster and, more importantly, give them the kind of personalised service that bigger banks can't rival, many SMEs claim.

These concerns were apparent in a recent chat with the president of the SME Association of Malaysia and Datuk Nelson Kwok of Nelson's - a now successful SME that made its money by being the first to retail "corn-in-a-cup" in Malaysia - on separate occasions.

"We feel SMEs will become more and more marginalised," shared Chua Tiam Wee of the SME Association.

Interestingly, SMEs in Europe had similar concerns some years back when banks there went through a consolidation phase as competition grew keener.

Such fears were based on what they saw in the US market, where a clear relationship had been established between bank size and SME lending.

It warranted a study on the matter in the summer of 2003 by the European Investment Bank, which concluded, after a survey of banks in the European Union, that contrary to "conventional wisdom", banking consolidation would not necessarily be harmful for SME lending.

Do Malaysian SMEs, however, have reason to worry?

Probably not, as many of the bigger banks have in recent years started paying more attention to SMEs, realising that this could be a huge growth segment for them.

CIMB Group, for instance, said last year it was aiming for a double-digit growth in SME loans this year, a reverse from the yearly contractions it had seen previously.

Right now, SMEs easily roll out names like Alliance Financial Group, the country's smallest banking group, and the soon-to-be-defunct EON Capital (recently swallowed by Hong Leong Bank) and even RHB Capital (which is being eyed for takeover by CIMB or Malayan Banking) as examples of banks that treasure them. Bigger bank Public Bank is also a favourite.

Big banks would be remiss not to do more to attract SMEs, just as much as they would big corporates, as these companies are going to play a huge part in the country's economic development.

The government expects their contribution to gross domestic product to increase to 40 per cent by 2020 from 31 per cent last year.

This spells out big opportunities for banks if they financed the viable ones.

As at end-February this year, SME financing outstanding accounted for 38.3 per cent, or RM130 billion, of total business loans.

As banks grow bigger and use more technology to deal with customers, they would do well to remember not to lose that "personal touch" that SMEs so value in banking.

This is after all something any customer, not just SMEs, would appreciate.