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