All eyes on SME Bank restructuring

Plans are in the pipeline to raise funds from the market; implement pro-active measures to assist SMEs; and, allow SMEs to submit innovative business ideas.

SMALL and medium enterprises (SMEs) account for 99 per cent of total business establishments in the country, contributing 31 per cent of the gross domestic products (GDP), 56 per cent of employment and 19 per cent of exports.

The figures, however, are from a five-year-old census, which was the Census of Establishments and Enterprises 2005.

Whether the number of SMEs has increased in relative to total business enterprises or otherwise, what matters is if these companies of between five and 150 workers and sales of between RM200,000 and RM25 million are providing meaningful input to the country's economy, export earnings and creating plenty of jobs for the locals.

The government will be undertaking a new census on SMEs next year. It may not be wrong to expect that local SMEs have grown significantly over the past five years, with strong government support.

While SMEs in advanced economies are still reeling from the recession, their counterparts in the emerging markets, including Malaysia, are recovering steadily. SMEs surveyed in the country have indicated full recovery in the second half of this year.

However, SMEs' contribution to the economy in other countries are way ahead than in Malaysia. Last year, SMEs contributed about 49 per cent to the GDP in Germany, 49.4 per cent in South Korea, 55.3 per cent in Japan and over 43 per cent in Singapore.

The government has also taken steps to boost the SME sector. Among them are the rebranding of SME Corp with greater role and scope and the setting up of the National SME Development Council - the highest policy-making body on SME development, which the Prime Minister chairs.

A wide range of initiatives, programmes, funding and grants are being channelled to the SMEs through various government agencies, ministries and development financial institutions (DFIs).

Bank Perusahaan Kecil & Sederhana Malaysia Bhd (SME Bank) is one of the DFIs dealing with SMEs.

SME Bank, which was born following the rationalisation of Bank Pembangunan Malaysia Bhd and Bank Industri & Teknologi Malaysia Bhd some five years ago, has been the receiver of brickbats since a year ago.

The bank, which reported a net loss of nearly RM80 million last year as opposed to RM46 million net profit in 2008, is said to be plagued with delinquent loans, bad investment decisions and high staff turnover.

However, there is still light at the end of the tunnel when the bank appointed a new man at its helm on July 1.

All eyes are now on Datuk Mohd Radzif Mohd Yunus, who succeeded former managing director, Datuk Azmi Abdullah, who has retired.

Mohd Radzif, former IJN Holdings Sdn Bhd managing director, was brought in as Azmi's deputy in April this year.

He is not new to the reorganisation of government-owned entities, having successfully restructured the national heart centre, IJN and also reorganised Pilgrims Fund subsidiaries.

Mohd Radzif, who was in the local banking sector in late 1980s and early 1990s, said each of the organisation has its own vulnerability.

At IJN, he had to re-align the skilled and competent people to a common goal.

"Here, the challenges are different. There are many issues, processes and service delivery ... everything is inter-related to each other," he said recently.

The bank's turnaround exercise, which is done in two phases, is expected to be completed by the middle of next year.

Plans are in the pipeline to raise funds from market such as issuing of bonds and taking deposits; implementing pro-active measures to assist the SMEs with early intervention and allowing SMEs to submit innovative business ideas.

In any turnaround, everyone involved has to swallow the bitter pill as most turnaround routes are not without bumps. Mohd Radzif must be given the chance and room to execute the bank's restructuring plans.