When there’s a changing economic climate, banks can often get spooked and withdraw the amount they’re willing to lend, but that’s not how we do things at OakNorth. Here our Senior Director Dan Haxby discusses the responsible way we approach lending to continue to support strong businesses during changing times.
In the early days of my career in finance, someone told me that banks were organisations that gave you an umbrella when the sun was shining and asked for it back when it started to rain. Over perhaps four recessions and maybe six financial crises during that career, I am confident that many borrowers understand the metaphor. With dark clouds swirling in the economic environment, business leaders are no doubt wondering who will help them stay dry.
Banks can quickly veto entire sectors, regions or structures, without differentiation. Bumps in the road can be seen as terminal risk issues. A risk aversion mindset – fed by macro clouds, covenant breaches, extrapolations of current trends, corporate risk appetite – becomes self-fulfilling.
And, who wants to be the lone voice predicting an upturn or staking their reputation on a management team or a recovery plan, when every news article and the bank strategy states emphatically the contrary?
But banking relationships are built over many years, through the good times and bad. Borrowers need a supportive, flexible, lending partner to work through the challenges they’ll be facing.
In recent years, capital has been readily available and providing that support has been straightforward. During Covid, the government admirably stepped forward to encourage banks to continue providing that support with various schemes and amendments to the legal environment. But now that capital is less available, expert industry knowledge and trusted relationships will count even more.
Banks and the businesses they have chosen to partner with will need to resolve the issues between them – which is not the easiest task. With rising input costs, the energy crisis, base rate rises, scarcity of labour, tightening demand, volatile FX rates, and general uncertainty of outlook – embattled management teams are searching for respite and a friendly voice that listens.
At OakNorth, we’re built on the concept of providing that support. We look to understand each business on a granular, scenario-tested basis. That’s why we focus intensely on understanding the underlying business model, and our credit monitoring tools across the portfolio allow us to anticipate issues early. This allows us to engage with stakeholders and management teams with a wide range of options at our disposal – before the situation becomes more serious.
Of course, not all businesses are designed to withstand heavy storms. Sometimes business models become outdated, or end markets change and it’s difficult to react with sufficient speed and flexibility. That is a necessary feature of the world that we live in, we have a duty to protect the capital we manage, and will continue to do so as a responsible and conscientious lender. But strong businesses can survive – and indeed thrive – through challenging times and will remember those who travelled alongside them.
We support the right founders and expert management teams in delivering their vision and we understand that the real world does not move in straight lines. Reputations are built over years and can be lost in moments. We understand that a well-capitalised owner, is more likely to be around to benefit when the world turns for the better – which it will.
Our £8.5bn of lending over seven years is testament to this approach – we received CBILS accreditation in Spring 2020 – just months after the virus first reached British shores, as we wanted to support businesses. Over 2020 and 2021, we completed almost £3bn of new lending to existing borrowers who needed support and new borrowers who found their existing bank asking for their umbrella back.
We exist to support entrepreneurs and SMEs, helping them succeed and scale over the long term. It is not an easy task, but one we believe to be worthwhile. We are building a business for the long term, come rain, wind or shine. Now, where did I put that umbrella?
by Dan Haxby, Senior Director, OakNorth Bank
