The Coronavirus: important considerations for loan portfolios
The COVID-19 outbreak is the biggest shock the world economy has experienced since the Global Financial Crisis of 2007–08. With the virus spreading at an exponential rate, from Asia to North America, with no known cure, uncertainty is translating into a significantly negative outlook for financial markets, multiple industries and disruption to supply chains.
Central banks are responding by pumping more stimulus into the economy to ensure business activity doesn’t come to a standstill. Last week the Bank of England has cut its base rate to 0.25% from 0.75% and also announced a loan scheme for small businesses to access cash via banks over the next 12 months. Keeping access to funding for UK’s SMEs is key to economic growth and having it dry up would be unquestionably detrimental.
With expected slower business activity, SME and near/subprime consumer loan pools are likely to be under stress. Environment like this underscores how essential it is for institutional funders of these loans to have appropriate insight into their portfolios. Equally, it is crucial for loan originators to build strong relationships with their institutional investor base that are based on communication and transparency, especially as their cost of capital stays the same or increases while they face a potential drop in loan origination.
Alterest was founded to help avoid a repeat of the Global Financial Crisis by bringing more transparency into the opaque private credit space. We are in the business of equipping institutional funders with the tools they need to keep channeling capital into the lending space with confidence.
As the market conditions worsen, with origination volumes and credit quality likely deteriorating accordingly, we are more convinced than ever that access to the right information and confidence in loan data quality are of utmost importance for private credit investors. If you are interested in learning more about how we can help, please get in touch with us at hello@alterest.co.
