Chief Risk Officer’s UK Update — Supporting your portfolio

Jerome Le Luel joined Funding Circle as Global Chief Risk Officer four years ago; bringing with him more than 20 years of experience in risk management. His previous roles include Global Head of Risk Analytics at Barclays Bank and Global Chief Risk Officer at Barclaycard, where he successfully navigated their global portfolio through the 2008/9 recession.

Jerome leads a team of more than 100 risk professionals across the markets Funding Circle operates in: including data scientists, credit risk analysts and credit assessment experts.

In this update, Jerome talks through how we are continuing to manage your portfolio during this period; including the support we are providing to the businesses you lend to.

I hope you and your loved ones have been keeping yourselves safe and healthy over these last few months. We’ve been working hard to deliver on our two key priorities during this time: supporting as many businesses as we can and protecting the returns of the investors who lend through our platform. I wanted to provide an update on what we have been seeing, and how we are continuing to manage your portfolio through this period.

The full economic impact of the virus remains unknown

The economic restrictions imposed on businesses in response to the coronavirus are largely still in place today. However, the UK Government has recently published their exit strategy and we are beginning to see a gradual re-opening of the economy; with non-essential retailers being able to reopen from mid-June. With so much still unknown, it is too early to predict what the full impact of this pandemic will be. However, the reduction in activity caused by these restrictions means the UK is likely to enter an economic downturn.

This time is different

In a typical downturn, you would expect higher-risk businesses to be more impacted when economic conditions change. In this unprecedented situation, the blanket restrictions placed on the UK economy have instead seen a large proportion of UK SMEs finding themselves suddenly unable to trade. 

We have seen this in the types of businesses that have come to us seeking assistance. While the vast majority continue to repay their loans on time, there has been an increase in requests for payment plans from otherwise healthy businesses that have prudently looked to suspend their repayments while their ability to trade is temporarily restricted. 

While no one knows exactly how the coming months will play out, a short, sharp recession followed by a quick recovery as the economy reopens is likely to see many of these businesses get back on their feet and start repaying their loans.

We have the right tools to manage your portfolio through this period

In response to this unprecedented situation, we have taken unprecedented action to help businesses through this period, and in turn mitigate any potential impact on your portfolio. These include:

  • Providing short-term flexibility: Supporting businesses through this period by offering short-term payment plans will give them time to get back on their feet, generate revenue and subsequently repay their loans. This helps to minimise avoidable credit losses in the long-run, protecting your returns in the process. The majority of businesses that have become late over the past few months are now on one of these plans. If appropriate, we will continue to provide further flexibility for businesses that need it, ensuring we are doing everything we can to both support them and protect your portfolio in the long-term.
  • Significantly increasing our support capacity: We have significantly increased capacity to our Collections and Recoveries team; re-deploying and hiring new staff to answer calls, set up payment plans and provide crucial support to businesses in difficulty. We have also enhanced the efficiency of how this team operates by improving productivity tools and automating workflows.
  • Facilitating finance through Government-guaranteed schemes: In April we became an accredited platform under the Government’s Coronavirus Business Interruption Loan Scheme (CBILS). To focus on providing loans under this scheme, we have paused new retail lending as retail investors are unable to participate. However, being able to offer these loans—with no repayments due for the first 12 months—will help your portfolio by providing some of the businesses you are currently lending to with a vital cash injection or the ability to refinance their debt, subject to eligibility. We are also working with the Government towards becoming accredited under their Bounce Back Loan Scheme (BBLS). This would allow us to offer smaller government-guaranteed loans—up to £50k—to more of the businesses you lend to, providing additional liquidity and support.
  • Resilient loan pricing: We have always priced loans so that if bad debt were to increase multiple times over, our loanbook would still be likely to deliver positive returns overall, once loans have been repaid and recoveries received. While the economic picture is still too uncertain to update how we expect our loanbook will perform in future, we are confident investors’ portfolios are well-positioned to weather this period of uncertainty. 

Over the coming months, many of the businesses you lend to will resume trading as the restrictions start to ease. The support they have received during this period, whether through government schemes or flexibility from their finance providers, will help to provide them with the breathing space they need to get up and running again.

We will continue to carefully monitor both our loanbook and the external environment to ensure we are doing everything we can to manage your portfolio through this period, and will continue to keep you updated through our newsletter. 

I hope you have found this information useful. If you have any questions, please don’t hesitate to get in touch.

Jerome Le Luel

How to teach your children about money

If you’ve been looking after children during lockdown, you may be thanking the heavens above that schools will be reopening soon so that the teachers can get on with educating your kids rather than you. 

But even if you don’t have to grapple with trigonometry or the English Civil War anymore, it’s still important to keep on educating your children (even the tiny ones) about personal finance when they go back to school.

A recent study by Cambridge University has found that children’s money habits are set from as early as age seven. Also, according to research from Experian, parents are the single biggest influence on children’s attitudes towards money, although more than half of parents say they lack the confidence or knowledge to teach money management.

Fear not, though. It doesn’t take a lot to get children on the road to sensible saving, spending, earning and investing. Here are some easy ways to help your children at various stages of their lives, to learn about money management.

Little ones

What is money and where does it come from? Many small children think that money just comes out of a hole in the wall, like magic. If they see you take cash out of an ATM or pay for something with a card, explain to them occasionally that the money is coming out of your bank account and that you will have to put more in to top it up later.

Teach them the numbers. There is a correlation between how good we are at maths and how good we are at managing our money. Help your little ones understand numbers as early as possible with number games, toys and even songs!

Play shops. Most small children like to play shops or run pretend cafes, so play it with them with real prices on items. Make some things more expensive than others and let them have a go at counting out pretend coins. 

Primary school

Coins and notes. Pay for things in cash occasionally and let them count the change. Go through the different notes and coins with them so that they get to recognise the denominations.

Shopping. Get them to help with the shopping by finding the best value versions of some products. They could even keep some of the savings as their reward.

Pocket money. Start to give your children a little pocket money each week from the age of five or six. Let them know what it’s for – maybe just for sweets, ice-creams and fun things.

A piggy bank and a real bank. Get your child to learn to save by giving them an actual piggy bank of some sort to save coins in. Also set up a savings account for them where birthday and Christmas money goes, together with any money they don’t spend from their pocket money.

Get into apps. Kids also need to understand digital money. Try one of the apps aimed at children and parents like Rooster, a virtual budgeting app which enables children to have a savings and a wallet account in one. It’s suitable for four-year-olds upwards. There are also other money apps aimed at children such as Osper, goHenry and Nimbl which allow parents to open online accounts for their children which are controlled via smartphones. These are proper digital current accounts which parents must pay a monthly fee for. 

Chores for money. It’s important for children to contribute to family life by doing daily chores, but you can add on some extra chores which they can do for payment and learn that money is earned. You can use the GoHenry app to pay them digitally. Children do jobs at home and the parent is sent a note about it via the app so they can get paid for completing the task. 

Teenagers

Give them an allowance. Pretend that the pocket money, or allowance, you give your teens is their ‘salary’ and that they can save or spend it as an adult would. You could even charge them a bit of ‘interest’ if they want to borrow more. This gets them used to earning and budgeting for themselves.

Comparison sites. Challenge your teens to use price comparison sites to get a better deal on household bills. Include some sort of incentive to make them do it (maybe 10% of savings goes into their bank account).

Compound interest. Don’t let your teens underestimate what they learn in maths about compound interest. Explain to them why it is (according to Einstein) ‘the eighth wonder of the world’ by showing them how it could make them rich long-term.

A Saturday job and more. Encourage your teen, as early as possible, to get a Saturday job and help them find one. It could be a paper round (though there are fewer of those now), washing up or waiting at a local tea shop or café or even babysitting and car-washing for local residents.

Students and after

Explain the cost of interest on their student loan. Students are getting savvier but many still don’t realise how much their student loan could cost them in the long-run. Explain how interest on a loan can mount up so that they understand it’s not free money.

Don’t pay their bills. Rather than paying their household bills while they’re at uni (or starting work in another town), give your student offspring a monthly allowance, if you can afford it, from which they have to pay their own bills, learning how to budget and finding the best value utilities.

Money-earners. Universities now often provide ways in which some students can earn money but it’s even better if you can help them to find temporary work in the holidays and part-time work during term-time. Working in pubs, cafes and shops is particularly popular but there are also other opportunities like taking part in online and offline focus groups, doing psychology tests in the university and tutoring.

And finally…if your child is about to turn 18 and has a Child Trust Fund account, hunt for the paperwork as it will be maturing as they start to come of age this year.  That should be a good start to their savings journey!

Get more tips and ideas for making and saving money by following Jasmine on Twitter at @Jasmine and on Instagram at @JasmineBirtles

The views expressed here belong to the author and do not represent those of Funding Circle. Funding Circle is not authorised to, and does not, provide investment, tax, legal or regulatory advice. To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, such information contained here. If you have any questions, please speak to your professional adviser or seek independent specialist advice.