When the tide goes out

2018 was the anniversary of the credit crunch in 2008 which was widely attributed to the irresponsible lending of Banks. The current global economic uncertainty compounded in the UK by the Brexit issues ensures it is worth reviewing the current lending landscape in 2019 as compared to 2008.

In 2008 and thereafter it was the world’s Banks who faced significant impairments and losses as a result of their prior irresponsible lending. This necessitated global government intervention to support the banking sector to prevent the failure of leading institutions. A condition of this government support was increased regulation and actions to prevent irresponsible lending by Banks.

A consequence of this regulation has been that since 2008 the Banks have largely retreated from risky lending, with new lenders filling the void. Many of these new lenders have been characterised by youthful management teams, technology led and the mantra that it is different this time. Many of these alternative lenders have grown exponentially since 2012 during a period of benign credit conditions. Their growth being characterised by minimal defaults, improving cost of funds and growing loan books.

It is these alternative lenders who have largely funded the perceived 'riskier' aspects of the lending market, with Banks minimising their exposure to these areas. In many cases the sector has minimal regulation with many lenders operating in the unregulated space and benefiting from institutional investors with minimal or no public reporting requirements. Consequently, it is difficult to assess the trends in delinquent loans.

However, in discussions with experienced lenders and based on the available evidence it appears that many of these new lenders are experiencing increased defaults and that their business models are not immune to the challenges which undermined the Banks in 2008. Consequently, it appears reasonable to surmise that if the current uncertainty and economic malaise continues it will be the alternative lenders who suffer the losses the Banks were exposed to in 2008. 

RSM offer a bespoke Standby Service for the alternative finance sector, find out more here