KUALA LUMPUR (March 30): The decelerating number of new applications among small and medium enterprises (SMEs) for rescheduling and restructuring (R&R) from its July 2021 peak signalled greater confidence among SMEs of their ability to service their debt, said Bank Negara Malaysia (BNM).

Monthly R&R applications by SMEs normalised to early 2021 levels of less than 5,000 from a peak of 50,000 in July 2021 despite making up 95% of total business loan accounts approved for R&R.

“Repayment assistance and other measures by financial institutions, the government and the bank, including flood relief programmes, also contained any notable increase in defaults among SMEs,” BNM said in its Financial Stability Review for the second half of 2021.

However, the share of SMEs under repayment assistance remained high at 36.5% of bank and development financial institution loans to the segment, compared with 17.7% among non-SMEs and 24.6% among all businesses.

“Based on a survey conducted by the bank between October and November 2021, almost half of the SMEs reported weaker revenue, with the majority of those affected faced an up to 50% revenue drop," BNM said.  

SMEs were more affected by the Covid-19 pandemic given their smaller cash buffers and generally thinner profit margins, it said. High input costs and labour shortages added more pressure on operating expenditure and production capacity, it noted.

BNM highlighted that SMEs in the hotel, wholesale and retail trade, and transport and storage sectors, which had experienced a slower recovery, caused the number of SMEs that rolled over their repayment assistance with banks to edge higher towards the end of 2021.

SMEs in sectors most affected by the pandemic are being closely monitored by banks as support measures are progressively unwound, with the central bank saying that a sustained economic recovery will mitigate credit losses from banks’ exposures to SMEs.

“Since the onset of the pandemic, financing of close to 53,000 SME accounts has been approved under BNM’s Fund for SMEs, amounting to RM19 billion,” it added.

BNM also said that enhancements of debt workout mechanisms for SMEs that continue to face difficulties in loan servicing under the Credit Counselling and Debt Management Agency (AKPK) could help avert large-scale insolvencies.

Read more stories from the BNM Annual Report 2021 here.