LETTERS: SINCE the main problem for small- and medium-sized enterprises (SMEs) is cash flow, if it continues to be constricted despite government assistance, then they will not only have problems retaining workers, but also in servicing their current and new debts.
Calvin Cheng of the Institute of Strategic and International Studies has called for grants, instead of loans, to provide a stronger buffer for vulnerable SMEs to avoid insolvency.
Piling loans upon loans on SMEs could, paradoxically, exacerbate the cash-flow problem for SMEs.
With the Malaysian Institute of Economic Research forecasting that unemployment levels will hit 9.2 per cent by year end, which translates to about 1.5 million people, under the worst-case scenario, even with Prihatin and Prihatin Plus, the argument for more direct fiscal injection should gain traction.
Normally, unemployment is correlated with consumer spending. However, consumer sentiment was resilient and robust during the peak of Covid-19 for many Asian countries, according to a McKinsey survey.
This was confirmed by a report by Boston Consulting Group's Centre for Consumer Insight, which highlighted that 53 per cent of Malaysians surveyed believe the nation's economy will improve in the next 12 months.
But typically, the higher the unemployment, the lower the consumer spending. So even with buoyant consumer spending levels, this is simply not sustainable in the medium run due to rising unemployment.
Under such conditions, the chances of default would certainly increase.
This means that not only are we in danger of not defusing the unemployment time bomb, we are also in danger of being confronted with bad loan time bombs in the near future.
Many SMEs have applied for the Wage Subsidy Programme and Employment Retention Programme to help them stave off retrenchment. Some have also taken advantage of the credit line facilities to help ease their cash flow.
Up to last month, banks have approved about RM3 billion worth of funds to support 6,840 SMEs. The bulk of this was from the Special Relief Facility provided by Bank Negara Malaysia.
The facility allows SMEs to apply for loans of up to RM1 million with a 3.5 per cent interest rate. Eighty per cent of the amount is guaranteed by the government through the Credit Guarantee Corporation.
For the Micro-Credit Loan Scheme offered at zero per cent interest rate, RM132 million has been approved by Bank Simpanan Nasional (BSN) and Tekun Nasional. BSN approved RM90 million for 2,000 micro SMEs, while Tekun Nasional approved RM42 million for 5,000 micro SMEs.
Tan Sri Yong Poh Kon, in his capacity as honorary adviser for the Malaysian Consortium of Mid-Tier Companies, has calculated that an additional RM15 billion for six months for the Wage Subsidy Programme is needed, which adds to only a meagre one per cent and amounting to 7.1 per cent of the gross domestic product.
Even then, for those who are servicing their loans, the risk of default or the delinquency rate might spike after the end of the six-month moratorium period (for bank loans), according to Dr Yeah Kim Leng, professor of economics at Sunway University Business School.
Yeah says, however, that a stress test by Bank Negara Malaysia has indicated that the banking system can absorb such losses. Now, while our banks' impairment ratio — the level of bad debts on the balance sheet — is at safe and sound levels, this could change in the medium term.
The problem is, of course, with SMEs, not the banks. But banks will also have to suffer non-performing loans when the defaults occur. Offering credit to SMEs in debt is, therefore, akin to SMEs taking on new loans to pay off existing ones.
The final reckoning will be when the impact from the real economy catches up with the financial system — "reverse transmission" — that might drag the economy further downwards.
This scenario of SMEs defaulting on loans, which will reverberate throughout the economy, may not even materialise. It's all theoretical, at least at this stage.
The bottom line is that our SMEs need more than just loans. NowSmall- and medium-sized enterprises will need more help to get back on their feet in the coming months. PIC BY AIZUDDIN SAADhere is this clearer than for the government to look into increasing its direct fiscal injection for SMEs.
JASON LOH
EMIR Research
The views expressed in this article are the author's own and do not necessarily reflect those of the New Straits Times