Ashish Nayyar, Co-Head, OakNorth

Ashish has over 18 years’ experience in setting up and managing diverse businesses. His areas of expertise include team building, strategic planning, credit analytics, client engagement and service delivery. In his current role, he co-manages India operations of OakNorth, which comprises of a team of over 500 employees with skills across multiple domains including credit analytics, technology, data science, consulting and presales. Ashish is responsible for building high performance teams and providing strategic direction and oversight to teams in India for achieving the company’s mission of changing SME lending globally for growth companies. Formerly, Ashish was part of the leadership team at Phronesis Partners, a Singapore headquartered research and consulting firm, where he spearheaded firms entry into financial research domain and managed service delivery for credit funds, private equity funds and consulting firms across various geographies including the US, UK and Singapore.

When looking at the commercial lending market, one of the key factors for any lender is to ensure they keep their loan book secure and minimize any losses they may face.

In recent times, we’ve seen many lenders turn to or increase the level of their pre-existing digital transformation programmes to more effectively manage their loan life cycles and more specifically, address the complexities of risk management throughout these cycles.

Outside of this approach of using the advancements in technology, especially artificial intelligence and machine learning techniques to help address and manage credit risk, banks have historically lent within the Commercial Real Estate (CRE) sector because it’s more straight forward to evaluate a property vs. the complexities of a particular business and sector. Many lenders, especially in the US, have had a lot of success with CRE lending and place far less effort on lending to trading businesses (often called “Commercial and Industrial” or “C&I” lending).

The primary reason for this has historically been that the case for analyzing the prospects of a business is clearly more difficult than valuing a property. The lender needs to take into account the prospects for the overall sector alongside considering how the particular business is likely to fare in the future. Because there may not be the same level or types of assets to provide collateral for the loan (especially for the sorts of services businesses that dominate the new economy where assets can be more intangible such as intellectual property), there appears to be greater uncertainty and more downside risk.

Like with so many aspects of our lives, the COVID-19 pandemic has radically altered what we’ve been seeing in the market. For example, the trend towards more flexible and remote work has accelerated. No one really knows how this will play out in the long term, but the current indications are that remote work will play a much greater part in the mix from now on. Furthermore, many consumers have changed habits and now do an even greater proportion of their spending online than before, lessening the desirability of in-store retail premises. Brick and mortar retail has been bouncing back somewhat however as confidence grows and social restrictions disappear, but the convenience and instant gratification of online shopping means that we will probably never see things go back entirely to where they were pre-crisis.

These factors contribute to an uncertain future for CRE, making diversification more important than ever. Not only can banks avoid the risk of softening of CRE, but they can catch the wave of growth as businesses recover from the crisis and the need for debt finance expands.

This is where the OakNorth Credit Intelligence Suite can help in terms of giving banks the confidence to do more C&I lending moving forward throughout the post-pandemic recovery. This is because the Portfolio Insights section of our software does a “bottom-up” evaluation of a banks entire loan book, assigning each business a vulnerability rating based on a subsector-specific, forward-looking credit scenario taking liquidity, debt capacity and profitability into account. This gives two significant benefits, first it allows a bank to identify risk in its book 6-12 months earlier than they otherwise would and secondly it creates tremendous operational efficiency by allowing them to focus their attention on the loans which present the highest risk of future credit deterioration.

Catching problems early means they are easier to solve as well as leading to lower losses overall. Loans without high-quality or tangible collateral require much closer monitoring – the forward-looking capabilities of ON Portfolio Insights enable lenders to manage those loans much more efficiently.

By providing a dynamic, forward-looking view of the vulnerability of borrowers, ON Portfolio Insights can help lenders diversify into C&I lending with confidence that they will find risk 6-12 months earlier (when they can hopefully take action to address it) and create operational efficiency by targeting their efforts on the areas where they will have the most impact. This is all part of our mission to help lenders empower the Missing Middle.

A perfect example of the power of early risk identification and mitigation is with our bank in the UK, OakNorth Bank, where out of $8B USD lent, we have only had 10 defaults since inception, with 100% recovery on 6 of those and over 95% anticipated recovery on the remainder. This is the power of being able to identify borrowers at risk and begin mitigation efforts far earlier than other lenders – before the borrower has even yet defaulted. An approach that we insist other banks must take if they are to enter and navigate the commercial lending market successfully. 

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