Three out of five Malaysian SMEs may ditch traditional banks this year

PETALING JAYA: Malaysian banks are at risk of losing SME business to non-traditional competitors, according to analytics company Fico, on the back of insights prepared by RFI Global-based research from the SME Banking Council.

It highlighted that 57% of local SMEs are expected to take up new or alternative borrowing products in 2022.

Similarly, 70% of SME in the Asia Pacific are less than satisfied with access to credit from their main bank and have also cited other issues such as lack of transparency, information, and guidance with traditional banks.

Fico Asia Pacific decision management solutions senior director, Aashish Sharma, voiced out that the pandemic put a sudden, massive burden on SMEs, globally, and did not think banks did enough to help them.

“Malaysia’s SMEs have made it clear that they require financial support in 2022 but are less optimistic about getting it from their main banks,” he said in a statement.

“This is a potentially worrying trend for traditional banks, considering there are an estimated 1.15 million SMEs in Malaysia, employing about 48% of the workforce and contributing just over 38% percent of the GDP.”

The data analytics firm stated that banks need to understand what is causing SMEs to consider alternative funding sources.

According to the survey in the Asia Pacific region, SMEs expressed frustrations with the typical funding process of traditional banks and had identified room for improvement in their Covid-19 response.

The survey found 70% reported access of credit as a factor of frustration, alongside financial assistance (69%), information & guidance (68%), transparency relating to decisions and processes (68%) as well as speed of response (64%).

Consequently, it also found competitive interest rates, ease and speed of application process and flexibility in repayment options to be the top three drivers for Malaysian SMEs in choosing a loan provider.

Sharma elaborated that alternative lenders have the potential to gain ground based on the challenges identified by this research and by its own market observations.

“However, the opportunity is there for traditional banks to retain borrowers if they understand those key decisioning criteria alongside the challenges and funding support sentiments of SMEs and the themes that have emerged.”

The senior director said traditional banks must simplify the application process and improve transparency, as well as customer experience to see a continued and sustainable business growth from the SME segment in the region.

“From the banks’ risk management perspective, they can support these efforts with scalable, well-informed decisioning tools that can both speed up the process for all and minimise risk.”