Published April 15, 2009

Najib urges banks to take 'calculated risks'

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(KUALA LUMPUR) Malaysian Prime Minister Najib Razak called on banks to take 'calculated risks' as he started a government programme to guarantee RM10 billion (S$4.2 billion) of loans and help credit flow.

After cutting interest rates to record lows, Malaysia's central bank has said the priority is to ensure small and medium-sized businesses can access funds to ride out the global recession. The loan guarantees were part of the government's RM60 billion second stimulus package announced in March. A specially formed unit, owned by the finance ministry, will start on April 16 and expects more than RM600 million in loan applications from financial institutions within a week, the unit said in a statement in Putrajaya yesterday.

'There's no reason for financial institutions to be worried as a big part of the risk will be shared by the government,' Mr Najib, who is also the finance minister, said in a speech. Still, 'financial institutions should be prepared to take calculated risks and not be too conservative by only giving loans when there is a guarantee'.

One fund, the Working Capital Guarantee Scheme, will help provide as much as RM5 billion of capital to businesses. A second fund, the Industry Restructuring Guarantee Fund Scheme, will help companies obtain the same amount to boost productivity, spend more on R&D, and invest in 'green' technology, according to yesterday's statement. Under the programme, the government would guarantee 80 per cent of loans for companies with shareholder equity of less than RM20 million. Financial institutions bear the remaining risk. -- Bloomberg