SME Banking in Asia Pacific

SUMMARY

Introduction

Small to medium sized enterprises (SMEs) account for more than 95 per cent of companies in keyAsian-Pacific economies yet have traditionally been sidelined by financial institutions. How are SME marketsin Asian economies composed and what are the financial demands of companies of this size? How can financialinstitutions serve the SME market more effectively? This report provides the answers.

Scope

• Covers SME banking markets in four key economies: Hong Kong, Singapore, South Korea and Australia
• Includes data on the structure of and growth areas in SME markets, including data breakdowns by 13industry sectors and four company size bands
• Examines the growth of specific SME industry sectors over the period 1999-2003
• Features data on aggregate lending to and aggregate deposits held by SMEs broken down by industry sectorand company size

Report Highlights

Total lending to business in Hong Kong declined at an estimated compound annual growth rate of -2.8 percent over the period 1999-2003. Yet, while total business lending declined, the contribution of SMEs becamemore significant.

Of the 624,010 SMEs in Australia, more than two thirds, or 402,289, employ between one and four people. Afurther 180,880 SMEs employ between five and 19 people meaning that 93.5 per cent of people employed by SMEsin Australia are employed by what can be described as 'micro-SMEs', namely companies with less than 20employees.

Despite difficult operating conditions SMEs in South Korea have managed to increase the deposits they hold.At the end of 2003 Korean SMEs had aggregate deposits of USD201,994 million up from USD142,867 million at theend of 1999.

Reasons to Purchase

• Improve your understanding of SMEs in any one of four key markets
• Learn more about the unique financial services needs of smaller companies
• Identify the key areas of opportunity in the SME banking space in the Asia-Pacific region.

TABLE OF CONTENTS

CHAPTER 1 EXECUTIVE SUMMARY

• Introduction
• SME basics
• The SME environment
• Industry sector analysis
• Company size analysis
• SME banking
• Competitive environment

CHAPTER 2 INTRODUCTION

• What is this report about?
• Who is the target reader?
• How to use this report?

CHAPTER 3 ASIA-PACIFIC COMPARISONS

• SME basics
• The number of SMEs
• The importance of SMEs
• SME banking
• Lending to SMEs
• Deposits held by SMEs
• Loan to deposit ratios
• Conclusion

CHAPTER 4 HONG KONG

• Market context
• The business environment
• The SME environment
• SME sector breakdown
• Number of SMEs
• Industry sector analysis
• Opportunity analysis
• SME banking
• Background
• Market size
• Competitive environment
• Summary of key opportunities

CHAPTER 5 SINGAPORE

• Market context
• The business environment
• The SME environment
• SME sector breakdown
• Number of SMEs
• Industry sector analysis
• Company size analysis
• Opportunity analysis
• SME banking
• Background
• Competitive environment
• Summary of key opportunities

CHAPTER 6 SOUTH KOREA

• Market context
• The business environment
• The SME environment
• SME sector breakdown
• Number of SMEs
• Industry sector analysis
• Company size analysis
• Opportunity analysis
• SME banking
• Background
• Competitive environment
• Summary of key opportunities

CHAPTER 7 AUSTRALIA

• Market context
• The business environment
• The SME environment
• SME sector breakdown
• Number of SMEs
• Industry sector analysis
• Company size analysis
• Opportunity analysis
• SME banking
• Factor and invoice discounting: key growth areas in small busniess finance
• Farm Management Deposits
• Market Size
• Competitive environment
• Summary of key opportunities

CHAPTER 8 CONCLUSIONS

• The importance of SMEs

CHAPTER 9 APPENDIX

• Data tables
• Hong Kong
• Singapore
• South Korea
• Australia
• Definitions
• Future readings
• Current Datamonitor publications
• Relevant links
• Datamonitor's custom research capabilities
• SPP writing team
• How to contact experts in your industry

List of Tables

• Table 1: Number of SMEs in Hong Kong, Singapore, South Korea and Australia
• Table 2: Summary of the government funding schemes available to SMEs in Hong Kong
• Table 3: Trade and individual bankruptcies in Singapore, 2000-2003
• Table 4: Financial institutions offering loans through the Local Enterprise Finance Scheme (LEFS) andthe Micro Loan Scheme
• Table 5: The number of steps and days required to start up a small business according to the World Bank
• Table 6: Business and non-business related bankruptcies in Australia, 1997/98 - 2002/2003
• Table 7: Number of companies entering external administration in Australia, 1999-2003
• Table 8: Lending to SMEs in industry sectors and countries ranked by lending outstanding at the end of2003
• Table 9: SMEs in Hong Kong segmented by industry area and company size, 2003
• Table 10: Employees of SMEs in Hong Kong segmented by industry area and company size, 2003
• Table 11: SMEs in Hong Kong segmented by industry area and year
• Table 12: Lending outstanding to SMEs and non-SMEs in Hong Kong
• Table 13: Deposits held by SMEs and non-SMEs in Hong Kong
• Table 14: Loan to deposit ratios for SMEs and non-SMEs in Hong Kong
• Table 15: Lending outstanding to and deposits held by SME industry sectors in Hong Kong segmented byindustry area, 2003
• Table 16: Lending outstanding and deposits held per Hong Kong SME in industry sectors, 2003
• Table 17: Loan to deposit ratios for SME industry sectors in Hong Kong, 2003
• Table 18: Lending outstanding to and deposits held by SMEs in employee bands in Hong Kong, 2003
• Table 19: The percentage of the workforce employed by specific industry sectors in Singapore, 1992-2003
• Table 20: The unemployment rate in Singapore, 1992-2003
• Table 21: SMEs in Singapore segmented by industry area and company size, 2003
• Table 22: Employees of SMEs in Singapore segmented by industry area and company size, 2003
• Table 23: SMEs in Singapore segmented by industry sector and year
• Table 24: Lending outstanding to SMEs and non-SMEs in Singapore
• Table 25: Deposits held by SMEs and non-SMEs in Singapore
• Table 26: Loan to deposit ratios for SMEs and non-SMEs in Singapore
• Table 27: Loan to deposit ratios for SME industry sectors in Singapore, 2003
• Table 28: Lending outstanding to and deposits held by SME industry sectors in Singapore, 2003
• Table 29: Lending outstanding and deposits held per Singaporean SME in industry sectors, 2003
• Table 30: Lending outstanding to and deposits held by SMEs in employee bands in Singapore, 2003
• Table 31: SMEs in South Korea segmented by industry area and company size, 2003
• Table 32: Employees of SMEs in South Korea segmented by industry area and company size, 2003
• Table 33: SMEs in South Korea segmented by industry area and year
• Table 34: Lending outstanding to SMEs and non-SMEs in South Korea
• Table 36: Loan to deposit ratios for SMEs and non-SMEs in South Korea
• Table 37: Loan to deposit ratios for specific SME industry sectors in South Korea, 2003
• Table 38: Lending outstanding to and deposits held by SME industry sectors in South Korea, 2003
• Table 39: Lending outstanding and deposits held per South Korean SME in industry sectors, 2003
• Table 41: Contribution to total production by specified industries, 2000/2001
• Table 42: Contribution to total production by specified industries, 2000/2001 continued
• Table 43: SMEs in Australia segmented by industry area and company size, 2003
• Table 44: Employees of SMEs in Australia segmented by industry area and company size, 2003
• Table 45: SMEs in Australia segmented by industry area and year
• Table 46: Lending outstanding to SMEs and non-SMEs in Australia
• Table 47: Deposits held by SMEs and non-SMEs in Australia
• Table 48: Loan to deposit ratio for SMEs and non-SMEs in Australia
• Table 49: Loan to deposit ratios for SME industry sectors in Australia, 2003
• Table 50: Lending outstanding to and deposits held by SME industry sectors in Australia, 2003
• Table 51: Lending outstanding and deposits per Australian SME in industry sectors, 2003
• Table 52: Lending outstanding to and deposits held by SMEs in employee bands in Australia, 2003

List of Figures

• Figure 1: Retail trade is by far the most significant SME sector in Singapore, hosting more than 17,000companies and accounting for 16.0 per cent of the SME market
• Figure 2: Lending outstanding to SMEs in South Korea has increased rapidly, particularly since 2001
• Figure 3: A number of SME sectors in Australia have high aggregate deposits or aggregate lendingoutstanding despite being relatively small in terms of company participation
• Figure 4: Countries and SME industry sectors covered in this report
• Figure 5: SME employee bands used in this report
• Figure 6: The number of SMEs in Australia and South Korea has increased consistently since 1999, whilethe number in Singapore and Hong Kong has gone both up and down
• Figure 7: In all four countries the smallest SMEs, those with one to four employees, account for morethan 55 per cent of the total number of SMEs
• Figure 8: SMEs account for a larger share of the workforce in Hong Kong than in Singapore, South Koreaand Australia
• Figure 9: SMEs in Singapore have a larger workforce on average than do SMEs in Hong Kong, South Koreaand Australia
• Figure 10: The sheer number of SMEs in South Korea makes the country's SME lending market considerablylarger than those markets in Hong Kong, Singapore and Australia
• Figure 11: Deposits held by SMEs in Australia have increased at a faster rate than deposits held by SMEsin Hong Kong, Singapore and South Korea
• Figure 12: Loan to deposit ratios for SMEs are considerably higher than for non-SMEs in all countriesalthough there is the smallest difference in South Korea
• Figure 13: Hong Kong's GDP has been broadly stagnant since 1999
• Figure 14: Manufacturing now accounts for less than ten per cent of total employment in Hong Kong
• Figure 15: Despite stagnant growth, SMEs represented 99.8 per cent of all companies in Hong Kong andemployed 82.3 per cent of the workforce in 2003
• Figure 16: In terms of the percentage of the workforce for which it accounts, Hong Kong's SME sector ismore important that sectors in Singapore, South Korea and Australia
• Figure 17: Micro-SMEs make up the majority of the SME sector in Hong Kong
• Figure 18: The vast majority of SMEs in most sectors in Hong Kong have fewer than 20 employees
• Figure 19: Medium-SMEs employ the greatest proportion of the workforce in industries that require largeinfrastructural investment
• Figure 20: The import/export sector is the largest SME sector in Hong Kong but it suffered a net loss ofcompanies over the period 1999-2003
• Figure 21: Falling consumer spending has squeezed the revenue lines of companies in the retail andwholesale sectors
• Figure 22: Import/export companies have declined in number but still dominate Hong Kong's SME sector
• Figure 23: Less than 50 per cent of SMEs are satisfied with their current financial services provider,yet only 12 per cent of companies have switched provider in the last three years
• Figure 24: SMEs have made an increasingly important contribution to total business lending in Hong Kongsince 1999
• Figure 25: SMEs accounted for more than 40 per cent of aggregate business deposits in Hong Kong at theend of 2003, up from 35.2 per cent in 1999
• Figure 26: SMEs in Hong Kong significantly decreased their loan to deposit ratios between 1999 to 2003
• Figure 27: Loan to deposit ratios in Hong Kong SME sectors are lowest in the education, health andcommunity and cultural and recreational sectors
• Figure 28: In 2003 there was more lending outstanding to SMEs in the property and business servicessector than to companies in any other sector
• Figure 29: At a per company level, SMEs engaged in construction borrow more on average and have largerdeposits
• Figure 30: Those SMEs with between 100 and 199 employees accounted for 34.0 per cent of outstandinglending to SMEs at the end of 2003
• Figure 31: The affect of the SARS outbreak on the Singapore economy broken down by industry sector
• Figure 32: Manufacturing is no longer the largest employer in the Singaporean economy
• Figure 33: Unemployment in Singapore remains below five per cent but has increased from two per cent in1992
• Figure 34: Both trade and individual bankruptcies have increased since 2000 although trade bankruptcieshave done so at a slower rate
• Figure 35: SMEs account for more than 99 per cent of companies in Singapore but less than two-thirds ofemployees
• Figure 36: Retail trade is by far the most significant SME sector in Singapore, hosting more than 17,000companies and accounting for 16.0 per cent of the SME market
• Figure 37: Micro-SMEs in Singapore account for more than 90 per cent of SME companies and more than 50per cent of the SME workforce
• Figure 38: Construction is the SME sector in Singapore most dominated by micro-SMEs while education isthe sector in which medium-SMEs are most important
• Figure 39: Medium-SMEs account for more than 20 per cent of employees in every SME industry sector andin total account for almost 50 per cent of individuals working for SMEs in Singapore
• Figure 40: The communication SME sector remains a small sector but it has grown rapidly and is nowdominated by micro-SMEs who employ almost two-thirds of the workforce
• Figure 41: Both SMEs and non-SMEs had less debt outstanding in 2003 than in 1999 although the fall overthe period was greater for non-SMEs
• Figure 42: Deposits held by SMEs have increased relative to deposits held by non-SMEs such that depositsheld by SMEs now amount to more than 35 per cent of total business deposits
• Figure 43: SMEs in Singapore have greatly decreased their loan to deposit ratio while non-SME companieshave managed only a small decrease
• Figure 44: The loan to deposit ratio in the Singaporean SME construction sector is considerably higherthan in any other SME industry sector
• Figure 45: Compared to other countries there is relatively little variance between the lowest andhighest loan to deposit ratio in Singapore's SME sectors
• Figure 46: The size of a Singaporean SME sector is a fairly good indicator of outstanding debt in thatsector and of the sector's aggregate deposits
• Figure 47: At a per company level deposits held by SMEs in the education and communication sectors areconsiderably larger than deposits held by SMEs in other sectors
• Figure 48: Micro-SMEs account for less than 40 per cent of both aggregate lending outstanding anddeposits held by SMEs
• Figure 49: Korean unemployment has recovered from the peak of the late 1990s but remains higher thanduring the early part of the decade
• Figure 50: Wages have increased significantly in South Korea particularly since the late 1990s
• Figure 51: SMEs account for 99.2 per cent of South Korea's total number of companies and 73.7 per centof its workforce
• Figure 52: Restaurants and accommodation and retail trade account for almost 50 per cent of the totalnumber of SMEs in South Korea
• Figure 53: Micro-SMEs in South Korea account for more than 90 per cent of SME companies and more than 50per cent of the SME workforce
• Figure 54: The manufacturing, restaurants and accommodation and education sectors are the least micro-SMEsintensive sectors in South Korea
• Figure 55: In two SME industry sectors medium-SMEs account for more than 60 per cent of the SMEworkforce
• Figure 56: Four micro-SME dominated SME industry sectors experienced positive growth over the period1999-2003 as did five sectors in which medium-SMEs are more important
• Figure 57: Lending outstanding to SMEs in South Korea has increased rapidly particularly since 2001
• Figure 58: Korean SMEs have grown their aggregate deposits since 1999 faster than have non-SMEs. Thismay reflect greater caution among the country's small business owners
• Figure 59: The size of a SME industry sector in South Korea is a good determinant of its borrowingrequirement and aggregate deposits
• Figure 60: SMEs in South Korea have increased their loan to deposit ratio over the last few yearsoutstripping the increase recorded in the non-SME business sector
• Figure 61: Six SME industry sectors in South Korea had loan to deposit ratios higher than 80 per cent atthe end of 2003
• Figure 62: Lending outstanding and deposits per SME are considerably higher in the finance and insuranceand communication sectors than in all other SME industry sectors in South Korea
• Figure 63: SMEs with between one and four employees accounted for 14.1 per cent of aggregate lendingoutstanding in South Korea and 13.7 per cent of aggregate deposits at the end of 2003
• Figure 64: Though increased twice towards the end of 2003, the Reserve Bank's cash rate target remainslow
• Figure 65: Since 2002 the Australian dollar has appreciated against the US dollar such that AUSD1 is nowworth more than USD0.70
• Figure 66: While until recently personal debt has increased in line with disposable income, housing debthas shot upwards
• Figure 67: Australian banks have increased their exposure to the residential property market over thelast decade such that at the end of 2003 lending to persons for housing accounted for 53.2 per cent of totalbank lending
• Figure 68: Manufacturing remains Australia's most important industry contributing 12.8 per cent to totalproduction
• Figure 69: In 2002/2003 business related bankruptcies numbered 3,636 the lowest annual total since1997/98
• Figure 70: The number of companies entering external administration has increased significantly over thelast five years
• Figure 71: In 2003 SMEs accounted for 99.5 per cent of the total number of companies in Australia and72.7 per cent of employees
• Figure 72: The three largest SME sectors in Australia are retail trade, construction and property andbusiness services
• Figure 73: Micro-SMEs in Australia account for more than 93 per cent of the total number of SMEs andemploy more than 55 per cent of the SME workforce
• Figure 74: Micro-SMEs account for more than 90 per cent of SME companies in all but five industrysectors
• Figure 75: Medium-SMEs are better represented in terms of their share of individuals employed by SMEs,employing more than 20 per cent of individuals in all sectors
• Figure 76: The construction sector has recorded strong growth in SME participation in recent years andalso now has a high percentage of its SME workforce employed by micro-SMEs
• Figure 77: In September 2003 39,841 Farm Management Deposit holders held deposits worth AUSD2.2 billion
• Figure 78: Lending outstanding to SMEs has increased broadly in line with lending to larger businessesin Australia over the last five years
• Figure 79: Deposits held by SMEs have increased faster than deposits held by larger companies over thelast five years
• Figure 80: SMEs in Australia have decreased their loan to deposit ratio from 82.5 per cent in 1999 to anestimated 71.2 per cent in 2003. In contrast, non-SMEs reduced their loan deposit ratio by less than one percent
• Figure 81: Loan deposit ratios differ widely between SME sectors being lowest in the cultural andrecreational, education and finance and insurance sectors
• Figure 82: A number of SME sectors have high aggregate deposits or aggregate lending outstanding despitebeing relatively small in terms of company participation
• Figure 83: Lending outstanding per Australian SME is highest in the communication sector while depositsare highest in the finance and insurance sector
• Figure 84: Micro-SMEs account for more than 35 per cent of aggregate lending outstanding to SMEs andmore than 40 per cent of aggregate deposits
• Figure 85: Datamonitor's core consulting capabilities