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Chris Ogilvie CFA


21701, United States

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In the previous week, I came across a couple of newspaper articles or blog posts addressing the situation about the problems for Smaller and Medium Enterprises (SMEs) to attain financial institution loans that I discover curiously perplexing.

Financial institution Negara commented that financial institutions are about careful even right after the central lender gave assurance that enough liquidity in the banking sector and have the capability to lend. Though Bank Negara had led the move by reducing the overnight policy fee and statutory reserve requirement for lessened cost of resources, several banking institutions are not releasing their -œover- careful place. It was also noted that banks are currently reviewing credit risk profile of active loans and determine if these SME companies can still satisfy the reimbursement routine, or if their assessment exhibits a large default threat profile, the banking institutions will both lessen the facility or in selected significant circumstances, calling bank the facility by demanding rapid repayment. This action will lead to financial slowdown and monetary crisis, globally.

The Association of Banks in Malaysia (ABM) responded to this remark that the perception is inaccurate. According to ABM's chairman, as part of the ongoing bank loan evaluations, financial institutions will need to evaluate and choose if credit score lines provided to the customers are absolutely utilized or decreased. This is to enable greater impression on other lending things to do. He has also commented that there has been an total boost in SME loans currently being authorized at 31 December 2008 as compared to the earlier 12 months.

Remarks from these newspaper content articles are all offered by leaders of their respective business. I did some prolonged informal findings from some rank and file employees, primarily bank loan officers from equally neighborhood and international financial institutions. Their reviews in basic are as follows:-
They obtained orders from bigger management to freeze most bank loan app from SMEs due to the fact the center of 2008.
Collateral demands are really unrealistic. Example, a person-for-one money collateral (say mounted deposit) for the facility (say overdraft or phrase loans).
Trade lines such as financial institution guarantees and Letter of Credits are no extended easily accepted by the banks, even all those lines issued by global famous financial institutions.
Financial institutions are relocating towards retail loans such as credit score cards, private loans, housing loans and car or truck loans. This is because the amounts are significantly reduced and their chance exposures are disperse more than a wider customer base.

Not long ago, I had dinner with 2 very fascinating personalities, largely due to the entities their functioning for. Currently being an -œoutsider-, I got to listen to and enjoy views from both equally these men, the two are in the middle conduite in their respective employers. One of them is working for a residence developer even though the other human being operates in a financial institution as a chance analyst, in charge with recommending if a financial loan can be permitted.

From the commercial entity view level, banks are meant to offer -œumbrella when it rains-. My buddy from the industrial entity commented that in true actuality, banks give loan when not required, and withdraw the services when they need to have these facilities most. Banks do not assistance them in their tricky days. In reality, financial institutions designed more problems for them by lowering credit lines, demanding rapid loan repayments, and threatening to call for default if their demands are not fulfilled.

My friend from the financial institution quickly responded, commenting that banks are also commercially pushed, and that they have to guard by themselves to guarantee survival. A easy error is their threat assessment will give rise to loan default. There are as well numerous experiences within just the banking industry that loans permitted to seeming superior organizations grew to become delinquent due to numerous unscrupulous businessmen who use the funds for their particular advantages at the detriment of the superior corporations. Therefore, the banks have to be very careful when reviewing mortgage apps to lessen the default risk.

From this simple dinner, I got to value that irrespective no matter whether it is truth or perception that SMEs are acquiring it challenging to obtain bank loans, the bottom line is that SMEs and banks have their own roles to perform in the commercial globe, for survivability, profitability and accountability to interested celebrations.

If you have an viewpoint, why really don't you share it with us?

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