Clients Bancorp in Wyomissing, Pa., Has partnered with OakNorth, a UK-based credit monitoring software company, to help it identify weak spots in its loan portfolio.
The two companies say the partnership is timely, as OakNorth’s data-driven approach will help clients with $ 11.5 billion in assets identify the sectors and companies in its loan portfolio that will be the most successful. hardest hit by the coronavirus crisis.
The OakNorth platform, currently licensed to 17 banks around the world, including OakNorth Bank in the UK and NIBC Bank in the Netherlands, targets the borrowing needs of a group it calls the ‘missing link “. These are companies looking for loan amounts between $ 1 million and $ 25 million.
Using machine-learning algorithms, their company’s insight or credit analysis arm provides swatches of data to its partner banks to help them make better lending decisions (and more. quickly) than a credit analyst could do it manually. The “foresight” part of its business looks for worrying signs of deteriorating credit quality and gives the bank an opportunity to report potential problems with its borrowers.
Regarding the current status quo, where businesses are forced to shut down indefinitely, “We are helping banks understand which businesses are most vulnerable and likely to need government support,” said Rishi Khosla, co-founder of OakNorth. “And we’re starting to work with the banks to help them understand on the other side of the crisis, how do we help restart businesses that may have depleted their working capital reserves so they can start operating again? “
As the crisis materialized in recent weeks, OakNorth examined its clients’ loan portfolios and performed reverse stress tests – starting with negative results, such as a drop in income, and looking for scenarios that could cause such an outcome – to determine their most vulnerable companies. . He created what he calls a “COVID vulnerability rating” by identifying which businesses could withstand six-week, three-month, or six-month shutdowns. And instead of making assumptions about an industry as a whole, like restaurants, it will assess the risk for each individual entity.
“We’ve helped clients take a data-driven approach to identifying where to focus their relationship managers and credit teams on businesses that will need support,” said Khosla.
Jay Sidhu, CEO of Customers, was drawn to OakNorth’s forward-looking approach.
“Banks in the United States today rely on historical information that is at least a quarter, if not older,” said Sidhu. “This data will be very useful in showing us which industries in our portfolio are more stressed than others and what metrics we will be looking at to determine the risk profile.”
Sidhu said customers will start by testing its existing portfolio using the OakNorth model and later decide how it can integrate it into other technologies the bank has put in place, such as nCino and Salesforce.
Sidhu said that when the economy begins to recover, he expects the OakNorth platform to speed up the underwriting processes for customers when granting new loans.
“My definition of fintech is something that banks should have done but chose never to do,” Sidhu said. “That’s a great example – it’s a smart way to underwrite and a smarter way to manage the portfolio. The banks are so focused on the way they have done it in the past.
Although OakNorth has several American customers, Customers is the first American institution to deploy the platform on all of its loans.