BANKS are expecting stronger revenue from the small and medium enterprise (SME) segment, with higher loans growth this year underpinned by various government initiatives to assist SMEs.

Given the surge in business activity, banks are confident this trend will continue into next year despite the uncertainty in the global economy.

OCBC Bank (M) Bhd head of emerging business Wong Chee Seng says the bank expects revenue and loans outstanding for the SME sector to grow by 10% each by year-end.

Net profit for this sector is also expected to increase by double-digits over last year due to lower credit losses from improving loan portfolio quality, he adds without specifying figures.

Despite the economic slowdown, the bank experienced revenue growth of 13%, loans growth of 20% and net profit growth of 50% as at end of last year.

Wong says Government investments and financial assistance programmes, such as the Working Capital Guarantee Scheme (WCGS), have given the business activities of SMEs a shot in the arm.

The high gross domestic product (GDP) growth during the first quarter has translated into higher confidence levels among consumers and businesses, he says.

The bank expects its SME business next year to surpass that of this year as Government efforts to grow the SME sector under the 10th Malaysia Plan (10MP) kicks in.

“Among the much anticipated financial assistance programmes will be the next tranche of the WCGS, which will assist SMEs in gaining easier access to financing. Our current SME loans portfolio comprises over a quarter of the bank’s total loans portfolio, and we expect this proportion to be maintained at a similar level this year and the next,’’ he tells StarBizWeek.

Due to the overwhelming response, WCGS was fully utilised by the fourth quarter of 2009.

In view of the successful take-up rate, the Government has allocated an additional RM3bil to WCGS to assist SMEs as part of the 10MP.

Loan guarantee schemes such as WCGS and the Industrial Restructuring Financing Guarantee Scheme (IRFGS) were introduced to help businesses facing difficulties as a result of the recent financial crisis.

The schemes were allocated RM10bil, with RM7bil for WCGS.

Wong says OCBC Bank is a major participant in the loan guarantee funds under the WCGS and IRFGS.

Of the total approved funds under both schemes so far, the bank has captured 8.8% market share, with total approved loans of over RM700mil.

OCBC Bank, which has about 8% of the SME market, expects demand for loans to increase in the second half because of the “improving economic climate”.

Wong foresees the SMEs investing more in technology as they move up the value chain in line with the rollout of the New Economic Model.

Hong Leong Bank (HLB) assistant general manager for business banking, Patrick Chin, feels the overall SME business for this year and 2011 will be better than in 2009.

According to the SME Corp Survey, SMEs performed better in the first quarter of this year than in the fourth quarter of last year in terms of sales, production, exports and profit margin. This was in line with the country’s GDP growth of 10.1% in the first quarter of 2010.

Chin says the bank is confident its SME loan portfolio will continue to grow strongly with support from the 10MP and government schemes.

As at June, HLB’s financial assistance to SMEs made up 40% of the bank’s business banking portfolio.

Chin says the bank expects double-digit loans growth this year.

“There is still a lot of room to grow in the SME segment. To increase our market share, HLB’s strategy is to continue to market aggressively and become one of the top SME supporters in the country,” he says.

CIMB Group Holdings Bhd, which is implementing a transformation programme for its SME segment, is another financial institution that plans to give out more SME loans next year.

At the recent SME Solutions Expo 2010, group chief executive Datuk Seri Nazir Razak said the company was looking at double-digit loans growth in the SME sector next year, from a contraction of 5% to 6% over the last four years.

SME loans currently account for about 15% of CIMB’s loan book.

The bank, which currently has about 9% market share in SME loans, expects to grow the share to “low- to mid-teens in the next couple of years”, he adds.

In the first half of this year, the bank registered slower contraction in SME loans and hopes for a turnaround by year-end.

The second phase of the bank’s transformation covers better customer engagement, strengthening of the product suite, specialised lending programmes and decentralisation that allows small businesses to apply loans from CIMB branches.

In the first phase, the bank focused on repairing asset quality rather than growing the asset base.

At the SME Financial Solution seminar 2010 and SME Recognition Award 2010 Roadshow held on Thursday, SMI Association of Malaysia president Chua Tiam Wee said SME Bank should be revamped to expand its role in providing financing for SMEs.

He said the bank’s contribution to SME financing was still negligible. He pointed out that in the first six months, only RM420mil were approved to SMEs compared with RM135bil in total loan approvals for the whole of 2009.