Relief measures helping to tide many businesses

Kuala Lumpur: The share of firms at risk is expected to rise further by end-2020 as more businesses may struggle to adapt to new operating conditions.

However, relief measures introduced by the Government and banks are helping to tide many businesses over temporary financial difficulties, said Bank Negara Malaysia (BNM).

“The impact of the (Covid-19) pandemic has been more pronounced on small and medium enterprises (SMEs).

“Surveys indicate that among smaller firms, many have limited financial buffers with cash reserves of only two months or less of expenses,” it said in its Financial Stability Review – First Half 2020.

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The report, which was released Wednesday, provides BNM’s assessment on current and potential risks to financial stability and the resilience of the Malaysian financial system to sustain its financial intermediation role in the economy. “The lower level of digitalisation among SMEs has also constrained their ability to pivot to e-commerce platforms to sustain business activity, particularly during the early phase of the Movement Control Order (MCO),” it said.

“While businesses have started to recover with the gradual easing of the MCO since May, the recovery has been uneven,” it noted.

BNM said the tourism-related and services industries were notably among the most impacted by the pandemic, as revenues fell sharply following lower inbound passenger loads and reduced spending on non-essential services.

Restrictions on air travel also weighed heavily on global oil demand, disrupting the recovery of firms in the oil and gas sector observed in late-2019, it said.

“More recently, the wholesale and retail sector has seen a gradual recovery following the easing of mobility restrictions post-MCO.

“Improvements were also observed in the manufacturing sector, notably within the electrical and electronics, and medical product segments, which have benefited from a backlog of orders due to the MCO,” said the central bank.

Meanwhile, in the real estate sector, BNM said activity picked up slightly in recent months although conditions remain challenging.

For the period between April and July 2020, banks approved 6.3 times as many applications from businesses to reschedule and restructure (R&R) their loans compared to total outstanding R&R business exposures as at end-2019, said BNM.

“The outlook for business credit risks will, however, continue to be highly dependent on the pace and strength of economic recovery,” it said.

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In the capital market, BNM said refinancing risks remain low with corporates observed to continue to be able to raise funding during this period.

“While larger issuances of government bonds going forward could see some crowding out of corporate funding in the debt market, the majority of corporate bonds maturing this year continue to be highly rated, further mitigating refinancing risks,” the central bank said.

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