Gareth Belsham

Time for lenders to grasp the nettle and purge the book

In an uncertain world where markets shift faster than the development cycle, it is a fact of life that deals can – and do – go wrong.

Lending has always been a competitive endeavour. But those who triumph in this game of risk and reward aren’t always the ones who keep their cards close to their chest. With the probability of a no-deal Brexit edging closer as 29th March approaches, there couldn’t be a more apt time for lenders to grasp the nettle and purge their books.

Much has been said about the sense of inertia weighing down pre-Brexit Britain; about stalling property prices and how many developers and lenders are waiting for the storm to blow over before committing to major projects.

And with margins already being squeezed by rising input costs, you can hardly blame lenders for holding fire and taking stock. After all, a project started tomorrow won’t necessarily yield as much as predicted on completion if we crash out of the EU without a deal before then.

Lenders are sometimes driven to get money out the door as much as they are to serve the needs of investors, and origination targets can sometimes be bonused on this basis.

As in any sector, there is a degree of personnel churn among loan originators and credit controllers – which increases the risk of bad loans falling through the cracks and creating lurking legacy issues.

The penny is, however, beginning to drop. More and more lenders are now quietly enquiring about how to make good their bad loans. This is despite lenders’ widespread – and understandable – inclination to do nothing and simply ride out the Brexit farce until the good times return. But with the market facing what could be the sharpest fall in a generation, players of all sizes may not have the option to procrastinate any longer.

So, now it’s self-examination time for lenders — a chance to bite the bullet and take stock.

Of course, it can take courage to invite external experts to read over a lender’s bad books. Our industry is not immune to the influence of pride and self-esteem, so laying bare shortcomings and seeking advice can mean taking a leap of faith.

However, as the prospect of a chaotic no-deal Brexit looms ever larger, stability remains elusive and the day of reckoning for many lenders is getting closer. For those with bad loans, doing nothing is no longer an option.

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