My take on the COVID loan data...

As many of you know I was closely involved with the structuring, execution and funding of both the CBILS and BBLS programmes through the crisis and the subsequent RLS scheme.

It's difficult to comprehend or infer what the impact on SMEs would have been had the Government and the BBB not acted so decisively and quickly.

I'm not going to talk about some of the issues with the schemes - it's very hard to criticise anyone (especially the BBB, which in my opinion has taken some unfair flack through the media) when everyone was working to create a transmission mechanism at a time (remember back in March 2020) when the world looked very uncertain.

Were the schemes perfect - no - but that's not the point for discussion here, they were designed with the best intentions - supporting SMEs through a pandemic and providing a transmission mechanism to get money direct into the hands of companies facing an uncertain future.

Yesterday saw data published in the form of league tables on a lender by lender basis, you can read the data here: COVID-19 loan guarantee schemes repayment data, as at 31 March 2022 - GOV.UK (www.gov.uk)

What is clear is that billions of support was directed to SMEs and that the 'alternative lending' space including FinTech lenders and Neo/Challenger Banks played a key role.

When you dive into the data you instantly start looking at the default rates and how much each lender wrote - this is only natural, but it's comparing apples and oranges.

The risk tolerance of each organisation varies wildly and so does the customer base. Many of the younger banks had attracted a new wave of businesses that have started over the past 5 years, are these less financially viable than some of the more established businesses on the books of the traditional banks? Only time will tell here, but survivorship bias means that albeit some default rates on BBLS may be higher the book of business that remains should be very stable for these 'newer' banks.

BBLS seems to be the only place where you can draw a straight comparison due to the structural aspects of the programme - ie not having to fully underwrite the business in the same way that was required for CBILS.

If you look at the CBILS data you have a wide span of performance across the lenders. The question here is more around the spread of businesses that these organisations cover.

With rates on CBILS going from 2% to 14.99% across lenders vs the flat 2.5% on the BBLS scheme there are some lenders who were able to support some 'higher risk' businesses. Again, we don't know the risk profiling of the lending that sits behind the data so drawing conclusions is hard.

Some lenders may be writing their loan books to a 2% default rate and some may be writing to a 10%+ default rate. It is that variety of risk tolerance however that meant more businesses were able to access credit through the crisis. It is also unclear at what average rates different lenders were writing business, so again hard to draw a comparison on the overall risk profile.

It's never going to be perfect and there will always be critics and supporters of the schemes. What will become clear is the overall cost to the taxpayer of these schemes, what will always remain unclear is what would have happened had the schemes not existed and the impact on UK plc.

*All views contained in here are personal and not affiliated to any company or organisation