Obviously the pandemic has been a torrid time for everyone in so many ways. For the economy we have seen some very dark times in certain sectors of the business world and we are seeing changes in working habits that change certain industries for ever. However there are opportunities for lenders and for Ablrate but for the moment concentrated efforts is being made to assist our borrowers and lenders manage their loans and risk and regularize payments as we all get back to normal.
Loan Book Management
Managing ‘the book’, as we call it, involves a number of factors.
Lender returns and risk
Serviceability is about making sure the borrower is able to afford the payments. In normal times we might expect one or two lenders to contact us and ask for payment holidays or reduction in payments to interest only for a period, as an example. When the pandemic started we had to evaluate, with our borrowers where the risk was to them and consequently to the loans that they have with our lenders.
The majority of loans were unaffected initially and with government support such as CBILs and the BBL scheme the storm was weathered by most. In areas such as entertainment, the pub trade, events and those business reliant on travel there was little to do but agree to payment holidays. With no income coming into those business it was a matter of putting everything on pause. As the pandemic wore on we had to re-evaluate some loans in order to assist with ongoing serviceability and changed a number to interest only or extended the term of their amortising loans.
Security in each loan is an important part of the process of managing the book. Ablrate layers the security where possible with cross guarantees and personal guarantees and in some cases cross collateralization of security (third party security not directly related to a loan).
Where a loan is secured by an asset we have assumed that the value has remained the same during the pandemic. There has been a rise in property prices due to government stimulus and so personal guarantees will benefit from these as well as direct property loans, however this may be short lived and re-assessing security in the last quarter of 2021 (if required) may give us a more realistic view of security values.
We have had a review of our documentation by our lawyers to tighten up some of the lessons drawn from a review of the cases involving failed platforms. We believe our documentation is very good but security documentation needs to be regularly reviewed against new laws and rules and against precedents that may be set, especially in the P2P space.
Lender returns and risk is something we take very seriously and this is under review in each loan.
The benefit of having the Loan Exchange in place is that there are those in our community who have a higher tolerance for risk. This means that those with a lower tolerance for risk will be able to offer their loans at a discount. This essentially means that a lender who is willing to take more risk is getting a higher return for that risk. We have spent a lot of time in the pandemic creating solutions for liquidity on the Loan Exchange which we aim to roll out in 2021. ASMX has matched £8.5 million in trades since launch and is growing all the time, we aim to add to this liquidity as we progress.
New loans have an element of Covid due diligence around serviceability and asset strength and we are continuing grow our borrower base who have ‘skin in the game’ such as first loss our sitting on the bid of a loan.
We are through the worst of Covid I am sure but we need to be vigilant in understanding the affect of the pandemic on our borrowers and our loan book and we are, as above, constantly looking for ways to mitigate risk and work with borrowers to have a positive outcome for lenders. Your capital is at risk in every loan on Ablrate and all other P2P platforms so please do make sure that you have balanced your portfolio and reviewed your risk profile in line with your position due to Covid.