KUALA LUMPUR: Experts hope that the merger of three development financial institutions will expand the financing ecosystem for small, and medium enterprises (SMEs), in particular micro-SMEs (MSMEs), in Malaysia.
The merger of the three institutions – Bank Pembangunan Malaysia Bhd, SME Bank Bhd, and Exim Bank Malaysia – has been in the works for six years, starting in 2019.
"Theoretically, we can see the benefits of the merger – to the shareholders, employees, customers, vendors, business partners, and the public at large. However, this is a dynamic and delicate process, as it involves a balancing act to satisfy many stakeholders," Universiti Kuala Lumpur Business School economic analyst, Associate Professor Aimi Zulhazmi Abdul Rashid, told Business Times.
All three banks, while under the Ministry of Finance and regulated by Bank Negara Malaysia, are supervised by different ministries.
SME Bank is under the Ministry of Entrepreneur and Cooperatives Development, while Exim Bank is under the Ministry of Investment, Trade and Industry. Its mandate is to provide financing to Malaysian businesses looking to go global.
Aimi said one of the key objectives of this merger was to boost, or create a bigger ecosystem for MSMEs. This sector plays a very important element in the Malaysian economy, contributing roughly 40 per cent to the national Gross Domestic Product (GDP).
"Hopefully, the merger will help our MSMEs locally, and nurture their entry into international markets," he said.
Bank Muamalat Malaysia Bhd chief economist, Dr Mohd Afzanizam Abdul Rashid told Business Times, the merged entity is expected to offer comprehensive services to their clients, and will be especially beneficial to MSMEs seeking to export their products abroad.
"So far, the share of MSME exports was around 12 per cent in 2023, versus 17 to 18 per cent, prior to Covid-19. MSMEs require assistance that would accelerate their business expansion, and widen their market reach. In this regard, the merged entity would be able to offer wholesome services to their clients and create more value," he added.
Putra Business School economic analyst, Associate Professor Dr Ahmed Razman Abdul Latiff told Business Times, that the main issue in the three institutions was that they focused more on bigger SMEs looking for large amounts of financing.
"These SMEs are more stable. Focusing more on these large SMEs would enable these financial institutions to achieve their key performance indicators (KPIs) faster. It is hoped that when this merger is finally completed, there will be more financing opportunities for smaller MSMEs," he said.
Ahmed Razman suggested specific measures to overcome these issues, such as ensuring that the right set of professionals are chosen to lead the financing department, not allowing politicians on the board of directors, and having a higher percentage of independent directors on the board.
He also believes that the KPIs for the merged entity should be structured towards impact and outcome, rather than output, or the number of loans disbursed.
The restructuring and merger of the three banks was first proposed in 2019, through a two-phase approach.
The first phase was completed in March 2023, when Danajamin Nasional Bhd's business and undertakings were transferred to Bank Pembangunan.
The second phase was reportedly kicked off with the appointment of banking stalwart Datuk Sulaiman Mohd Tahir as Bank Pembangunan's new chairman and independent non-executive director on March 20, 2024.
As at Dec 31, 2023, Bank Pembangunan made a net profit of RM400.8 million, with RM30.8 billion in total assets.
SME Bank's total assets grew to RM13.1 billion. By the end of 2023, its financing portfolio grew by seven per cent year-on-year, and had reached RM8.9 billion.
Total assets for Exim Bank as at end of Dec 31, 2023 stood at RM6.1 billion, with total gross loans and financing assets making up about 78 per cent of the total.