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12 March 2023

What is the implication of Silicon Valley Bank (SVB) collapse in Malaysia?

Silicon Valley Bank, one of the most prominent financial institutions catering to the technology industry, has been in the news lately for all the wrong reasons. The bank, founded in 1983, has been a pillar of support for tech startups, venture capitalists, and entrepreneurs.


However, recent developments have revealed that the bank is facing significant challenges, including a decline in profits, a rise in loan losses, and regulatory scrutiny. The bank has been struggling to cope with the economic fallout of the COVID-19 pandemic, and its exposure to risky loans has raised concerns about its long-term viability.

In this blog post, we will delve into the factors that led to Silicon Valley Bank's collapse, the impact it will have on the tech industry, and what is the potential impact on Malaysia.

Who is SVB?

SVB specialized in financing start-ups and had become the 16th largest US bank by assets 💁💁💁: at the end of 2022, it had US$209 billion in assets and approximately US$175.4 billion in deposits.

According to its website, it does business with nearly half of all US venture capital-backed startups, and 44% of US venture-backed tech and health-care companies that went public last year. 👀

Why does it collapse?

SVB’s ordeal began after its parent company, SVB Financial Group, announced that it sold $21 billion of securities from its portfolio and said it was holding a $2.25 billion share sale to shore up finances.

The move was prompted by high deposit outflows at the bank due to a broader downturn in the startup industry, analysts say. SVB also forecast a sharper decline in net interest income. SVB’s stock plunged 60% on Thursday 💢💢💢

Major US banks including Bank of America Corp., Wells Fargo & Co. and JPMorgan Chase & Co. all slid at least 5%, while shares of Asian banks later followed their Wall Street peers lower.


How is it now?

Regulators stepped in and seized it on Friday, in a stunning downfall for a lender that had quadrupled in size over the past five years and was valued at more than US$40 billion as recently as last year.

Its demise represents not only the largest bank failure since Washington Mutual in 2008, but also the second-largest failure ever for a retail bank in the United States.

What will happen next?

This is just the beginning. SVB had branches in China, Denmark, Germany, India, Israel, and Sweden, too. Founders are warning that the bank’s failure could wipe out startups around the world without government intervention. 💣💣💣

As we all know, cash flow is especially crucial for startups. Tech startups, which normally have negative cash flows during the initial years, raised funds from VCs and investors to sustain their lifespan until breakeven and started to generate positive cash flow or profits.

After they raised the required funding, this is where they placed the money as  deposits in a bank. And, this SVB is a commercial bank focused on tech startups around the world.

Meaning, the collapse of SVB would definitely hit the tech-startup companies and they could be facing bankruptcy and closing down as well.

How could this collapse impact Malaysia?

We don't think that this will hit us very hard, at least, not directly. Of course, the indirect impact could be faced by us in Malaysia also, especially tech startups that raised funds overseas, especially in Singapore (most of the cases).

Unless the VC industry was also being affected badly because of the collapse, Malaysia's startups shouldn't be facing any major issues other than that with lower valuation, most likely.

We will continue to update here... Stay tuned!

~ The End ~

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1 comment:

Finance Malaysia Blog appreciates your comment. Cheers!