23 Apr CREDIT MARKETS AND COMMERCIAL LOANS
Credit markets have been in transition as banks, governments and borrowers continually re-evaluate their position and requirements. Robinson Sewell Partners have submitted and got loans approved during the COVID timeline and can share the following insights.
- Banks are still working through the policy metrics of what the partially government backed loans require and are yet to deliver these loans in a meaningful way to commercial borrowers (at this point in time).
- Regardless of the policy, the borrowers will still have to demonstrate viability and capacity when COVID restrictions are finally lifted. There will be considerable detail required to satisfy these requirements.
- Some lenders are caught up in considerable back-end bottlenecks with the repatriation of offshore processing, managing abnormal volumes of requests for loan variations against antiquated software capability.
- Some lenders have even quasi quarantined “New to Bank” capability until their balance sheet and processing capabilities have been truly ascertained.
- Borrowers will need to demonstrate what their COVID risk management policy entails, their current and potential economic exposure to it, and their exit strategy emerging from it.
- Industries like agriculture have demonstrated the benefits of their non correlated relationship to other asset classes that are being immediately impacted by COVID. Seasonality is positive, commodity prices remain strong, food production is a protected enterprise and farmers naturally operate in an isolated environment.
- Agricultural lending is very strong. Land prices are still making new highs and industry participants, overall, are in an expansionary phase after two years of drought.
- Commercial lending has generally tightened and is more selective depending on industry, enterprise, resilience to cash flow pressures and the potential volatility impacting the security position. Presentation to the banks need to demonstrate robust assumptions, application of risk management and valid source documentation.
- Non-bank lending credit has tightened. There was an initial run of redemptions with a risk off attitude and flight to quality. Investors are seeking a more skewed risk weighted return (same price for less risk or higher price for the same risk).
- Some non-bank lenders have consolidated their position, whilst others are seeking to capture market share and dominance.
In Conclusion – financiers are still lending for commercial borrowers that present their funding proposal in a professional format akin to credit’s requirements. Interest rates are extremely attractive, and opportunities are now presenting themselves for those looking beyond the COVID experience.