SMEs at risk of loan defaults as interest rates rise

Which bank is most exposed?

SMEs are at greatest risk from defaulting on their loans as interest rates rise, a report by Maybank Kim Eng revealed.

According to Maybank Kim Eng, SME loans account for 13% of system loans and tend to be much more susceptible to defaults than larger corporate loans.

“This is because SME businesses are typically less diversified with smaller balance sheets to cope with economic challenges,” stated the report.

UOB is the largest SME lender across the board, followed by OCBC and DBS. Thankfully, banks’ proportions of unsecured SME loans have shrunk in recent years, to 21% from 25-29%.

“. Stress could start to emerge if the 3M SIBOR hits 3.5% in one fell swoop from 1%. In such an event, SME loans are most vulnerable, given their smaller balance sheets. But the saving grace is banks’ proportions of unsecured SME loans have shrunk in recent years.