OCBC expects SME loans in Iskandar to triple

SINGAPORE — Local small and medium enterprises (SMEs) looking to reduce expenses are set to grow their presence substantially in Iskandar Malaysia, according to OCBC Bank, which is forecasting that its lending to Singapore SMEs going there will triple in the next two years.

A combination of lower land and labour costs, compared to Singapore, as well as improving infrastructure will be factors driving SMEs to expand into Iskandar, said Mr Tan Chor Sen, International Head of OCBC Global Commercial Banking, at a media briefing.

“We saw a big growth last year, with our loan assets there doubling from 2011,” said Mr Tan. This expansion is in line with the fourfold increase in the number of OCBC’s SME customers that branched out regionally between 2010 and 2012, mainly to Malaysia.

“We expect another RM0.5 billion (S$202.9 million) growth in assets by the end of this year, and three times growth in the next 24 months,” he added.

Iskandar has been increasingly seen as a top destination for Singapore businesses as land constraints and tighter manpower policies continue to push up costs at home. As a result, the region will be a major draw for SMEs whose businesses are particularly labour and land intensive, said Mr Tan, noting that an OCBC customer in the steel manufacturing industry has seen 30 to 40 per cent savings in costs since relocating 70 per cent of its operations last year.

Some of Iskandar’s appeal stems from the lower cost of land there. Currently, Jurong JTC land with a 30-year lease costs about S$200 to S$259 psf, while freehold industrial land in Nusajaya, one of Iskandar’s five areas, only costs around S$141 psf, said Mr Tan.

As Iskandar’s business ecosystem continues to evolve, Singapore SMEs can also venture out of manufacturing to tap opportunities in the growing service sector there, he added, noting that the dynamic between Iskandar and Singapore could mirror that seen between Hong Kong and Shenzhen.