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MARC: Private bank support crucial to cushion Covid-19 impact after BNM’s subdued forecast for Malaysia

MARC said that BNM’s move to lower its Statutory Reserve Requirement (SRR) has also allowed banks to have more liquidity to provide businesses with fresh funds to be used as business lending for companies such as SMEs to recover during this time. — Picture by Yusof Mat Isa
MARC said that BNM’s move to lower its Statutory Reserve Requirement (SRR) has also allowed banks to have more liquidity to provide businesses with fresh funds to be used as business lending for companies such as SMEs to recover during this time. — Picture by Yusof Mat Isa

KUALA LUMPUR, April 4 — The Malaysian Rating Corporation Berhad (MARC) said private banks could play a crucial role in propping up Malaysia’s economy that has been severely affected by the Covid-19 outbreak — just like what they did during the 1998 Asian Financial Crisis (AFC) and 2008 Global Financial Crisis (GFC).

It said the banking sector is in a much better shape than it was prior to the 1998 and 2009 recessions to help small and medium enterprise (SME) companies that are under immense pressure during the pandemic and subsequent government-enforced movement control order (MCO).

“Given the government’s limited fiscal space, we feel the private sector can play a critical role in ensuring the Malaysian economic fabric remains intact in the long term. For example, commercial banking institutions can help support the economy by effectively utilising the liquidity made available by BNM (Bank Negara Malaysia) by lending to businesses that are in need of lifelines (e.g. SMEs with good prospects).

“This is because experience from the Global Financial Crisis (GFC) shows that a slow pick-up in lending growth (in the US) was a key reason behind the sluggish economic recovery despite the massive liquidity injections by the US Fed through its quantitative easing policy,” it said in a statement today.

MARC said that BNM’s move to lower its Statutory Reserve Requirement (SRR) has also allowed banks to have more liquidity to provide businesses with fresh funds to be used as business lending for companies such as SMEs to recover during this time.

“These funds are useful for businesses struggling to make ends meet especially at a time when there is a high cash burn rate (declining revenue and having fixed costs to pay).

“History shows that in the 2009 recession, loan approvals for businesses in the banking system fell on an average of 28 per cent y-o-y between mid-2008 and mid-2009. As such, the economy is in need of an injection of fresh funds by banks through business lending in order to recover,” said the statement.

On March 27, the government announced under the Prihatin Stimulus Package that it will add funds to the RM3 billion Special Relief Facility for SMEs, bringing the total to RM5 billion.

In addition, the interest rate for the entire fund will be reduced from 3.75 per cent to 3.5 per cent.

Secondly, the size of the fund will also be increased by as much as RM1 billion to RM6.8 billion under Kemudahan Semua Sektor Ekonomi to enhance financing access to all SMEs.

Third, the government said it will provide additional funds of RM500 million under the Micro Credit Scheme which makes a total of RM700 million allocated for easy financing.

The scheme will be run by Bank Simpanan Nasional, who’s offering only 2 per cent interest free of charge.

Loan eligibility requirements will also be extended with a minimum of six months of operation compared to one year of operation.

The financing amount is also increased from a maximum of RM50,000 to RM75,000 per entrepreneur.

The initiative is open to all micro entrepreneurs in all business sectors including taxi operators, bus operators, the creative industry and online traders.

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