SMEs in expansionary territory for third consecutive quarter: OCBC

LOCAL small and medium-sized enterprises (SME) have been expanding since the start of the year thanks to growing business digitalisation and adoption of e-commerce, OCBC reported.

According to the latest OCBC SME Index report, the Q3 2021 SME index rose for the third consecutive quarter at 53.6, despite the impact from the Phase 2 heightened alert measures in July and August. The index was at 59.5 in Q2 2021, and at 51.2 in Q1 2021.

The data is derived using the bank's transaction data of over 100,000 SME customers in Singapore with up to S$30 million in annual sales turnover. A reading above 50 indicates improved activity while below 50 indicates a deterioration relative to the same period a year ago.

The index also uses indicators such as sales collections, payments, cash flow and operating transactions of the SMEs with OCBC.

There was a moderation of the index from Q2 2021 due to a lower base in the corresponding period last year which saw Singapore enter a partial lockdown termed as "circuit breaker". In spite of this, Q3 2021 saw a 4 per cent increase in collections from the previous quarter, in line with the sequential recovery of the economy.

The Q3 2021 gross domestic product (GDP) Nowcast came in at 6.5 per cent, a "slowdown" from the 15.2 per cent GDP growth in Q2 2021. The reading estimates GDP using the latest OCBC SME Index and is aligned with the advance estimates of 6.5 per cent released by the Ministry of Trade and Industry and the consensus of 7 per cent in the Monetary Authority of Singapore's survey of professional forecasters in September.

The positive reading in Q3 2021 was largely broad-based for all industries except for the food and beverage (F&B) sector.

Manufacturing, information and communications technology (ICT), as well as transport and logistics sectors continued to see strong growth, riding on trends such as digitalisation, e-commerce and the recovery of global demand.

Positive growth was first observed in healthcare, and the transport and logistics sectors in 2020. Both extended their positive momentum, recording 5 and 4 consecutive quarters in the expansionary territory respectively.

Healthcare registered its Q3 2021 index reading at 51.2 driven by an increase in demand for healthcare supplies, while transport and logistics was at 54.6 led by a 57 per cent year on year (YoY) increase in collections.

The recovery in the building and construction sector also remains on track, despite supply chain issues, registering its third highest reading at 53.7. This was boosted by a 39 per cent improvement in YoY collections resulting in better cash coverage.

The construction segment being the largest, led the recovery as its sub-industry index was the highest in the industry at 53.9. This also positively impacted other supporting segments including building materials and engineering services. However on the flipside, there still are construction project delays arising from supply disruptions and manpower challenges.

Other segments such as investment companies and operators were also expansionary at 50.1 and "remain resilient".

The heightened alert measures strongly impacted F&B and retail, which registered the weakest index readings, with F&B being the only sector turning contractionary at 48.9. This negative impact is likely to persist in Q4 2021 as restrictions were tightened again in end-September, OCBC observed.

Collections for F&B dropped YoY in line with the lower customer traffic, resulting in deteriorating cash coverage positions. Firms with insufficient cash balances to cover 6 months of operations rose by 6 percentage points to 32 per cent YoY. F&B wholesale trade and F&B retail also registered a slowdown in the third quarter.

While the SME Index is expected to continue its expansionary trajectory in Q4 2021, recovery would be uneven with industries like F&B and retail being more vulnerable, OCBC noted.

Downside risks that "could derail recovery" for SMEs include a re-tightening of restrictions and persistent supply shocks, the report noted.

Head of global commercial banking at OCBC, Mr Linus Goh said: "There is growing evidence that the continued recovery of the SMEs this year has been buoyed by digitalisation and the adoption of e-commerce across industries. Going beyond the initial rush to digitalise in 2020, many SMEs are building on their digitalisation to further differentiate their products and services and to improve their customer reach at a time when global demand is improving."

Read more:

• Singapore's SME recovery on track, but further resilience will be key
• OCBC positive on repayment of SME loans in Singapore, but on the watch for Malaysia, Indonesia
• Singapore SMEs performance and health have improved beyond pre-'circuit-breaker' levels: OCBC