Serving an UNKIND CUT to SMEs

In an earlier survey, it was reported that banks had rejected 55% of SME loans applications in 2012. So, most SMEs were deemed to be uncreditworthy, yet there had been quite a few official “accolades” given to the SME segment.

According to Mr Teo Ser Luck, Minister of State for Trade and Industry,

“SMEs form the backbone of our economy, since they make up 99% of enterprises, employ 70% of the workforce and contribute more than 50% of Singapore’s GDP. The 2009 financial crisis also showed how SMEs add resilience to our economy – the value-added from the SME sector grew at 6.9%, despite an overall 1% GDP contraction in that year.” [link]

To be fair, our government has been paying much attention with agencies like Spring and IE Singapore leading the way. The efficacy of recent policy measures introduced is best elaborated elsewhere. In this post, I would like to touch on the current state of bank financing for SMEs.

Given their importance to our economy, one might think that the financing needs of SMEs are well taken care of…



Let’s start with a top down analysis of SMEs’ share of funding from our banking system. According to the MAS Financial Stability Review 2012, Singapore’s overall banking assets grew to S$2.2 trillion in 2011. Non-bank loans accounted for about 40% of the overall assets (or about S$880 billion). It was stated in the report that property-related loans form a significant proportion of non-bank loans. In our Domestic Banking Units (loosely, banks who are licensed to take in SGD deposits from the public and hence give out SGD loans to the public), property related loan exposures accounted for 46% of non-bank loans (or about S$405 billion).

Zooming in on SMEs, their outstanding loan exposures in the system were less than S$70 billion as at H1 2012. Putting things into perspective, SMEs garnered less than 8% share of non-bank loans and less than 4% of the system’s total loan book (stripping out securities and other assets), DESPITE making up 99% of enterprises, employing 70% of the workforce and contributing 50% to our GDP.

Further, less than 25% of SME loans were unsecured (loans that do not require collateral). That puts it at about $17.5 billion or less than 2% share of non-bank loans (and less than 1% of the system’s total loan book)!

So much for being the backbone of our economy!

Coupled with the higher borrowing costs typically levied on SMEs (elaborated here), CLEARLY, SMEs are being SERVED AN UNKIND CUT by the traditional financial system! Inadequate allocation of funds, and taking to mind the further manpower and restructuring challenges they are now facing, SMEs are indeed a stoic and resilient lot!

But this can’t be optimal!