RAM-CTOS BCI firmly positive in 2Q 2022

Published on 29 Jun 2022.

KUALA LUMPUR, 29 June 2022 – The 2Q 2022 RAM-CTOS Business Confidence Index (BCI) survey, conducted from 9-27 May 2022, showed businesses are firmly optimistic about their three-month outlook. The overall index clocked in at 65.0, up from 55.4 recorded in the preceding quarter and is well above the threshold of 50 which indicates positive sentiment. All other sub-indices tracked also showed positive momentum. It is not all smooth sailing, however, as over 80% of the 116 respondents polled are reporting rising cost pressures which could cap business recovery.

Figure 1: RAM-CTOS BCI – Firmer optimism among businesses in 2Q 2022

* The RAM-CTOS sub-index commenced in 1Q 2022. Data points prior to 1Q 2022 are derived from the main RAM BCI.
Sources: RAM BCI and RAM-CTOS BCI

Rising cost of business the top challenge

The rising cost of doing business remains the top hurdle this quarter, cited by 83% of firms, up from 72% in 1Q 2022. The share of firms citing labour issues also climbed sharply to 54% in 2Q 2022 from 43% previously. These challenges are particularly pronounced among manufacturing firms amid current spiralling input prices, supply chain disruptions and the prolonged foreign labour squeeze in Malaysia.

Figure 2: Rising costs a growing concern

Note: Percentages sum to more than 100% as firms are allowed to pick more than one response
Sources: RAM BCI and RAM-CTOS BCI

Most firms need financing, but access is uneven

About 60% of respondents - the majority comprising SMEs and micro firms - cited a need for more financing in the next six months to fund growth. These same firms reported more hurdles to secure additional external financing. More than 40% of SMEs and micro firms have had their financing applications rejected in the last six months, compared to just 10% for corporate respondents. Lack of collateral was cited as among the key impediment to obtaining financing. Consequently, smaller firms in our survey tend to be more reliant on personal funds to grow their business. It is, however, noteworthy that over 90% and 60% respectively of corporate and SME respondents have successfully raised funds from banks and other sources in the last six months.

Figure 3: Smaller firms less able to tap bank financing

Note: Percentages sum to more than 100% as firms are allowed to pick more than one response
Source: RAM-CTOS BCI

Bright prospects, headwinds may threaten pace of recovery

The firm optimism observed this quarter points toward a strong recovery for businesses this year. However, most firms are facing labour shortages and escalating input costs arising from high commodity prices and supply chain disruptions. The imposition of a higher minimum wage and rising interest rates further compound the challenges faced, particularly by smaller firms with fewer resources. Against these headwinds, policymakers and financial institutions are urged to continue to support SMEs and micro firms by facilitating access to financing and other market initiatives. This will ensure that the nation’s economic recovery remains on track this year.

Analytical contact
Woon Khai Jhek, CFA
(603) 3385 2512
khaijhek@ram.com.my

Media contacts
Sakinah Ariffin
(603) 3385 2505
sakinah@ram.com.my

Shahlini Thirunavukarasu
(603) 2789 1620
shahlini@ctos.com.my

The RAM-CTOS Business Confidence Index (RAM-CTOS BCI) is a comprehensive survey jointly conducted by RAM and CTOS, starting 1Q 2022, on forward looking business sentiment and topical issues faced by the small and medium business community in Malaysia. Released quarterly, the index offers a timely barometer of future economic activity to guide businesses’ investment decisions and planning as well as provide inputs for strategic policymaking by various stakeholders of the economy. This is done through the indication of positive and negative sentiment on five key aspects that are pertinent to their business operations over the next three months. The five business aspects surveyed are turnover, profitability, hiring, capital investment and capacity utilisation. An index value of 50 is the neutral benchmark while a value above 50 indicates positive sentiment by the firm; below 50 shows negative sentiment.

About RAM Holdings Berhad

RAM Holdings is a leading provider of independent credit research and advisory services. RAM Holdings (formerly known as Rating Agency Malaysia Berhad) was established in November 1990 as a catalyst for the domestic debt-capital market and as the nation’s first credit-rating agency. Its shareholders comprise both local and foreign financial institutions. On 1 July 2007, the rating operations were novated to a newly formed subsidiary, RAM Rating Services Berhad (or RAM Ratings). Today, RAM Holdings spearheads the cultivation of new businesses and continues to provide training as well as economic research that promotes financial and credit expertise, in addition to soft skills. For more information, log on to www.ram.com.my

About CTOS

CTOS is Malaysia’s leading registered Credit Reporting Agency (CRA), regulated by Ministry of Finance under the Credit Reporting Agencies Act 2010. Established in 1990, CTOS facilitates credit extensions by empowering individuals and businesses with access to crucial information at greater ease and speed. CTOS delivers a complete portfolio of credit risk management solutions and services and is widely used by the country’s banking and financial institutions, insurance companies, telecommunication companies, large corporations, SMEs, legal firms and state bodies. For more information, visit our website at www.ctoscredit.com.my

No statement in this paper is to be construed as a recommendation to buy, sell or hold securities, or as investment advice, as it does not comment on the security's market price or suitability for any particular investor.

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RAM-CTOS BCI firmly positive in 2Q 2022