Assetz Capital’s head of credit Tim Harper, head of legal and recoveries Sean McGrath, and chief risk officer Chris Macklin explain how Covid has changed credit processes at the property lending platform…
Assetz Capital will adopt a more flexible approach to forbearance schemes, while maintaining the strict credit assessment processes that were introduced in the early days of the Covid-19 pandemic, as the platform anticipates a return to normal trading conditions soon.
The peer-to-peer lending platform’s head of credit Tim Harper, head of legal and recoveries Sean McGrath, and chief risk officer Chris Macklin acted quickly to protect borrowers and investors in the early days of the pandemic.
“We realised the broad spectrum of the portfolio may potentially be affected by Covid initially,” said Macklin.
“So we devised and introduced a general forbearance scheme which we offered to the bulk of borrowers.”
This included things like extending and loosening repayment terms, offering capital holidays, or changing some of the key dates within its development facility agreements.
But the platform went further than that, and changed its credit assessment process to build in some rigorous new checks – particularly around eligibility for the coronavirus business interruption loan scheme (CBILS).
Assetz placed more emphasis on the longer-term viability of borrowers than it had previously. Then the platform trained its staff up so that it could respond quickly to new borrowing requests, even as its employees were forced to work from home.
As the pandemic went on, Assetz’ borrowers were able to benefit from government support, and fewer businesses needed financial support. In fact, Macklin said that some of Assetz’ borrowers “did amazingly well in some instances”, surpassing the platform’s expectations.
“Initially, we envisaged this would all be over within six months, but obviously it’s not,” said McGrath.
“And so we’ve had some repetitive forbearance for certain borrowers in certain sectors, particularly hospitality.
“But the numbers requiring forbearance have whittled down quite significantly over the past 15 months. And so forbearance numbers are relatively modest now.”
This was a testament to the platform’s quick action in March 2020, when it took the unprecedented step of offering all its developers a three-month loan extension, whether they had requested it or not.
“That took the absolute panic of the first lockdown away, when everybody was a bit confused about whether or not building sites were shut and what they should be doing,” explained Harper.
“But then as we got more into the pandemic and building sites reopened again, working on site was slower because some workers were having to self isolate, and material prices were going up. But generally, building projects have continued and we’ve managed to keep most things on track.”
However, this doesn’t mean that a default spike isn’t on the horizon.
“Insolvencies usually spike after the end of the recession where people have run out of capital or they start to grow again,” warned Macklin. “But this situation could be completely different because the property market has held up, sales have continued and there has been unprecedented government support.”
Now, Assetz plans to maintain its track record and continue taking care of its client base by maintaining some of its Covid protocols.
“We will continue to look more closely at viability going forward,” said Macklin. “Particularly in the immediate period after this, where we could get an uptick in insolvencies nationally.”
The first CBILS repayments will soon fall due, with many industry stakeholders warning of the possibility of rising defaults. But Macklin points out that Assetz’ loanbook has been behaving in line with what you would see in a normal cycle, with no spike in defaults. In fact, a number of Assetz’ borrowers have repaid their loans early.
“We may see slightly higher levels of defaults, but we’ve been quite rigorous around the initial assessments and longer-term viability,” added Macklin. “So hopefully that will mitigate against the risk of defaults.”