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Supporting SMEs is key to economic recovery – Interview with Sean Hunter, Chief Information Officer at OakNorth

Since the UK went into lockdown, OakNorth Bank has approved more than £60million in new loans to UK businesses – in addition to £36million of its initial £50million allocation through the Coronavirus Business Interruption Loan Scheme (CBILS).

According to OakNorth Bank, while traditional lenders are prioritising loans with a Government guarantee and keeping clear of the small and medium-sized enterprise (SME) lending market, it has identified an opportunity to help those businesses who are looking for debt finance to grow.

Speaking to The Fintech Times, Hunter explained: “Our goal is to use tech plus data plus people to solve the problem of SME lending globally. We think SME lending is broken and many banks’ approach to it has been rigid, bureaucratic and unchanged for quite a long time and we want to use a modern approach to fix that problem.”

“We are still doing new lending to businesses, not just CBILS, because there are good businesses who need capital. Since the lockdown, we’ve done £36million of CBILS loans but we have approved over £60million of normal, so to speak, new lending.”

“We believe really strongly in the power of SMEs and the importance of SMEs to the economy globally. And, if you think we’re going to have to reboot the economy when this crisis passes, it’s really SMEs that are going to be the powerhouse of that in so we want to look for strong businesses that we can support to help them to do that.”

Following the onset of the crisis in January 2020, OakNorth Bank built a Covid-19 Vulnerability Rating (CVR) Framework, which enables banks to rapidly determine the impact of the coronavirus on their portfolio, conduct credit analysis on those businesses that have been impacted and monitor those credits.

Hunter says: The CVR looks at the impact for business if there was a six-week lockdown followed by reviews of three, six and even nine months of lockdown and how that would impact businesses and then we use that framework to target which businesses needed immediate support.”

“We’re able to do the CVR analysis on an anonymised basis. So, banks give us an anonymised list of borrowers with a very small subset of data points about each borrower and we’re able to direct their attention to particular areas of their book that are vulnerable so they can prioritise their response.”

“That’s been very powerful and is very central to a huge surge in momentum that we’re having in the US, for example, because we’re able to help some very big banks who are not really set up to respond rapidly.”

According to OakNorth, the financial sector needs to acknowledge that the unprecedented challenge of the Covid-19 pandemic has required new solutions and should lead to a shake-up of old processes.

“I think this is a real watershed moment where everyone has to face up to the fact that this kind of slow bureaucratic approach was not fit for purpose, either from the borrowers’ perspective, but also from the perspective of protecting yourself from credit risk.”

“Going forward, I think we’ll see a data driven approach and a much more forward-looking approach to lending. My hope is that this underserved segment of SMEs does not continue to be overlooked by banks and globally banks are able to offer them a better service because we feel really strongly that they’re essential to the recovery post-crisis.”

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