BUSINESSES in Sabah are having trouble growing because banks are refusing to give them loans for fear of not making any profit, Sabah Housing and Real Estate Developers Association (Shareda) president Chew Shang Hai said.

“The state volume is so small that banks are not keen to do business in Sabah. Some are just only collecting fixed deposits. 

“They are also saying even if they closed down several branches in the state, it will not impact their balance sheets as Sabah only makes up around 1-2% per cent of the banks’ profits. 

“This is why they are closing down their branches here,” Chew said at the recent CEO Roundtable Conference in Kota Kinabalu, which was organised by the association.

Chew said Bank Negara Malaysia’s (BNM) 25% figure for total loan rejections for Sabah does not reflect the situation on the ground.

A Shareda study found that up to 70% of loan rejections occurred at bank counters, and these were not recorded in the BNM registry. 

“Over-the-counter rejections happens when bank officers only browse through the application and reject it themselves, without going through the bank’s head branch and BNM.

“There have also been instances where the rejection rate was up to 95%, making developers unable to commence construction,” he said. 

A non-viable market 

According to Chew, Sabah’s credit exposure now stood around 1%, leaving the state with little to finance local businesses. 

For instance, if all commercial banks had set aside RM100 billion for loan distribution nationwide, Sabah would only get around RM1 billion, he said. 

“This is nothing for Sabah. We need at least 7.5% to be able to sustain,” said Chew.

Some small-and-medium entrepreneurs have also complained about the “Temporary Suspension of Facility” by some banks in Sabah, when in fact the money had been called back to Kuala Lumpur, Chew claimed.

He acknowledged that the state’s population was small, with the average household income in Sabah being lower than RM4,000, while in Kuala Lumpur it was above RM5,000.

“It is unfair for the local businesses here. Banks are only keen on a viable and matured market like Kuala Lumpur. This is affecting many Sabah businesses, especially those trying to expand or improve their products,” he said. 

Chew noted that Sabah was fast developing, but the lack of credit was limiting the potential of local industries, such as tourism. Although Sabah was seeing an influx of tourists from China, local hotels did not have enough rooms to support the numbers, he said.

Developers’ woes

The high loan rejection rate has caused many developers to incur losses and property launches in the state have plummeted from RM7.4 billion in 2013 to slightly over RM3 billion in 2014. And Shareda expects the numbers to slide down further this year due to slow house sales. 

Developers had to foot the bill for land premiums, capital contributions costs and wait for at least six months to get their development plan approved by the authorities, causing the prices of homes to be set at a higher mark during launching. 

This, in turn, caused many Sabah house buyers to be unable to secure financing.

Shareda in June submitted proposals to Sabah Chief Minister cum Finance Minister Musa Aman to resolve the problem. A closed-door meeting was held on August 4 between the state finance ministers of Sabah and Sarawak with the federal Ministry of Finance and BNM officials.

“One of the results of this meeting is that BNM has decided to organise a regional risk forum this November. The chief risk officers from all commercial banks will be invited to attend and we will explain the differences in Sabah,” Chew said.

According to Chew, BNM is also going to establish a task force to study and improve banking infrastructure in Sabah.

Shareda has called for a fixed exposure ratio for Sabah to ensure that there is enough money for loans in the state.

“All types of businesses need the support of banks so they would be able to sustain. They can’t be exhausting all their personal resources and end up bankrupt,” he said. – August 12, 2017.