Can banks be more than fair-weather friends?

WE'VE all heard this before: banks can be a fairweather friend.

When all is fine and sunny, banks roundly support businesses through the good times. But when dark clouds gather, banks pull credit lines needed to get through a difficult period.

This criticism of banks and their so-dubbed mercenary tack does not escape Janet Young, managing director and head of group channels and digitalisation at UOB, who in March shepherded a busload of business clients from markets including Singapore, China, and Vietnam, to the annual OurCrowd summit held in Jerusalem.

There, these small-and-medium enterprise (SME) clients from South-east Asia mingled with portfolio companies of OurCrowd, a UOB-backed venture capital setup in Israeli that would matchmake accredited investors to its portfolio companies through equity crowdfunding.

It's an outdated view, says Ms Young, that on a rainy day, a bank takes an umbrella away. Instead, banks are increasingly trying to work with SME clients to ease them into restructuring for the future. This is a future that includes not just investing in technology, but also in sharpening their thinking to tackle a much larger opportunity in an increasingly borderless world.

Behind closed doors, banks with SME clients will say that while headline numbers suggest that SME funding is lacking, the reality that lenders struggle with is in getting SMEs to tackle strategy.

As one reflection of this, UOB has an FDI (foreign direct investment) advisory unit that it uses to draw investment flows from SMEs in the region looking to invest, but that need guidance on how to expand into new markets that may be more difficult to navigate. The difficulties come given a cocktail of issues ranging from capital controls to the differing business conditions that suggests South-east Asia is anything but homogeneous.

When UOB began working with OurCrowd in 2015, its starting point was to bring together the investing needs of its SME clients, and the leadiing-edge ideas from Israel - a place that offers deep-tech solutions and is one of the largest hubs for artificial intelligence services globally.

"The genesis was in connecting smart ideas and smart money," Ms Young tells The Business Times.

As time passed, the bank noticed that smart money extended beyond investing for themselves to increase personal wealth, but was also looking for ways to future-proof their businesses by integrating available technologies from vendors such as tech startups.

Working with OurCrowd - in which UOB has invested more than US$10 million directly for an undisclosed equity stake - the bank also found that the VCs' due diligence tests can offer a dress rehearsal for SMEs looking to expand its business into new markets.

UOB has referred a handful of SMEs, including tech companies under its tech incubator programmes, to OurCrowd, for them to be considered as portfolio companies of OurCrowd.

In undergoing an estimated six-month scrutiny by a venture capital investor, such SMEs are asked tough questions on whether their products and services are scalable, and whether the current traditional business will be able to pivot into a new service that is ripe for the new economy. "It offers a reality check," says Ms Young.

The bank itself is also changing - at its own pace - to assess SMEs beyond just looking at financials, and revenue projections. In some cases, it is trying to look at customer engagement metrics, to understand if these digital businesses are capturing customer engagement by offering a superior customer experience compared to their peers.

By moving along the deeper needs of its SME clients, UOB can move away from a "commoditised" way of working with SMEs, going beyond offering a credit facility, to growing with the clients looking to scale for the new economy.

"Businesses are so keen today to find and tap new reserves of ideas and innovation, that maybe their original businesses can come up with as well... so instead of lending them (money), this helps them to sharpen their addressable market and target audience," Ms Young says.

She adds that the message of reaching a much bigger market, beyond Singapore, is now sinking in among Singapore corporates. And to push SMEs to try, Israel's experience offers a refreshingly forgiving attitude towards risks and business mishaps - a lesson for Singapore SMEs that may be too risk-averse to take that first step out.

"The acceptance of failures is very commonplace here (in Israel)."