The coronavirus has skewed the old way of rating loans, which is why UK challenger bank OakNorth has developed its COVID Vulnerability Rating (CVR) framework to rate the risk of loans.
The CVR integrates over 130 proprietary COVID-19 subsector scenarios, enabling commercial lenders to re-underwrite their loan books on a loan-by-loan basis.
OakNorth has already signed a commercial agreement with PNC Bank, the American multinational banking group, to allow it to deploy OakNorth’s CVR framework across its commercial and industrial, and its commercial real estate loan books.
“Never has the need for enriched underwriting, credit science and a forward-looking approach been more important in commercial lending than it is right now with the ongoing challenges posed by COVID-19,” said Rishi Khosla, co-founder of OakNorth. “Instead of a playing for defence, spending time trying to figure out where their current books stand, running scenarios based on financial models that are no longer relevant, and trying to minimise the downside, we are working with lenders to enable them to get on the offensive, focusing on growing their business and orchestrating a consistent customer financing strategy.”
OakNorth stands out among the UK neobanks by being focused primarily on SMEs and by being one of the few ones that has actually reported a profit. In a recent interview, Khosla revealed that this was not just thanks to the company being funded by the profits from his and his co-founder’s previous startup, but also because of his reluctance to not spend money he didn’t have.
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