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SME Sentiment Index Reflects Resilience and Confidence in the Business Landscape

23 January 2024

KUALA LUMPUR: 23 January 2024 – Small Medium Enterprise Development Bank Malaysia Berhad ("SME Bank") has released the latest results from its SME Sentiment Survey for the second half of 2023, which indicated a positive trajectory for Micro, Small, and Medium Enterprises (MSMEs) as the business landscape demonstrated resilience and sustained optimism. The survey showcased key insights into the sentiments and expectations of business owners across various sectors.

SME Bank Group President / Chief Executive Officer, Datuk Wira (Dr.) Aria Putera Ismail commented, “We are pleased to share that the recent SME Sentiment Index revealed a slight increase from 52.9 in the first half to 53.5 in the second half of the year. This signifies that small and medium-sized enterprises continue to demonstrate positive viability and resilience. It is encouraging to see that business owners are maintaining a positive outlook, showing resilience and adaptability as they navigate the challenging economic landscape. These findings further strengthen our belief in the potential and endurance of our business community. SME Bank remains committed to supporting and empowering MSMEs on their journey towards sustained growth and success.”

The latest GDP of Malaysia's MSMEs has demonstrated a robust growth of 11.6%, surpassing the overall national GDP growth of 8.7% in 2022, highlighting the significant contribution of MSMEs to economic expansion.

Mohammad Azam Ahmad, the Group Chief Risk Officer of SME Bank said, “As MSMEs’ performance in 2022 exceeds pre-pandemic levels in 2019, we can see a substantial increase of MSMEs' contribution to the GDP from 37.4% in 2021 to 38.4%, with the value-added soaring from RM520.0 billion in 2021 to RM580.4 billion.”

He also added that this is an opportune time to re-evaluate business strategies and risk management approaches. "In light of the positive trends in the SME Sentiment Index and recognising the ever-changing business landscape, we encourage business owners to proactively manage and mitigate risks to enhance resilience. Embracing a robust risk management strategy can help businesses navigate uncertainties and thrive in dynamic economic conditions.”

The following are some key highlights of the SME Sentiment Index for 2H 2023: Business

Business Confidence Prevails

Despite challenges, business confidence remains intact. Over half of the respondents (66%) foresee an increase in revenue, while 64% anticipate a growth in profits over the next 6 to 12 months. Notably, the services subsectors, particularly financial (91%) which excludes commercial bank activities, and education (78%), stand out with a positive outlook aligned with expectations of an improved economic landscape in the coming year. Micro and large sized businesses are more positive, with sales and profit expectations higher than in the first half of 2023.

Challenges and Expectations

A high-cost environment remains a concern for MSMEs, with the majority (88%) expecting costs to increase in the next 6 to 12 months. This sentiment is particularly pronounced in service subsectors such as ICT, utilities, and food and beverages. Respondents also acknowledge the profound impact of inflation (98%) on their business performance.

In addition, changes in government policies (88%) are perceived as impactful, including targeted subsidies, political uncertainty, and regulatory requirements such as Environmental, Social, and Corporate Governance (ESG) adherence, tax compliance, and labour laws.

Strategic Workforce Planning

In line with economic recovery, 67% of MSMEs plan to expand their workforce in the next 6 to 12 months. Notably, the trend towards hiring non-full-timers is on the rise, indicating a preference for flexibility in adapting to market conditions.

Divergent in focus across business sizes

The majority of respondents wish to focus on improving their branding as well as marketing strategies. However, large and medium businesses focus more on expansion (92% of large-sized businesses) and digital transformation (72% of medium-sized businesses), respectively. This aligns with the 80% of medium-sized businesses who indicated that digital transformation is impactful to their business performance as well as the 85% of large businesses who are most optimistic about their sales and profit.

Cash Reserves and Alternative Financing

While the majority (66%) still have cash reserves for more than 6 months, the trend is shifting whereby the share of respondents (36%) having a cash buffer for more than a year has been drastically reduced, compared to 1H (50%). Despite that, only 44% of respondents are seeking alternative financing options, reflecting a sharp decrease from the first half. Sectors with lower cash reserves are also exploring partnerships, collaborations, and negotiating payment terms with suppliers to mitigate financial challenges.

Looking ahead, the 2H 2023 SME Sentiment Index reaffirms the enduring resilience of MSMEs amid economic uncertainties. The valuable insights derived from this index will serve as a strategic resource for businesses and stakeholders, empowering them to adeptly navigate challenges and capitalise on opportunities within the evolving business landscape.

The full report of the 2H 2023 SME Sentiment Index published by SME Bank can be obtained at www.smebank.com.my/en/sme-sentiment-index. For more information on SME Bank and available programmes contact 03 – 2603 7700 or email [email protected].