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The asset finance industry has traditionally provided increased value to its customers and thrived during successive economic downturns, but will this necessarily be the case this time round?

This is one of the questions which delegates at the UK Asset Finance Connect Conference in London on 5th December 2022 will seek to answer, in a packed agenda set to be announced over the next eight weeks leading up to the event.

There is some evidence we may not get the usual baked-in outcome from the cost-of-living crisis, that we have experienced in the past.

First, customer expectations changed during the COVID 19 crisis. Borrowers benefited from early intervention, and an increased focus on flexibility and forbearance from lenders. The experience changed customers’ expectations and more significantly it changed lenders’ behaviour too. Both sets of changes may endure.

Second, regulator expectations have changed. The UK Financial Conduct Authority (FCA) wrote to bank bosses last month emphasising banks’ responsibilities to their customers and linking their behaviour to the new Consumer Duty. They will be expecting a more innovative and proactive response from banks than the usual risk reduction, tightening of lending criteria and withdrawal of services at the very moment that customers need them most.

Changing bank behaviour may arguably reduce the increased opportunities which non-banks have experienced in the past when banks have withdrawn.

Third, the Government recognises the effect that the energy crisis is having on businesses. It is too early to say what policies Liz Truss, the new UK Prime Minister will introduce but the focus will be on business growth, and both banks and non-banks can expect to come under increased pressure to help drive it through their lending policies.

The opportunities for banks and non-banks in the downturn seem likely to come from deploying a mix of innovative new solutions that better meet customers’ changing needs, and better selling of the benefits of traditional products.

As Richard O'Donoghue, from Dell told Asset Finance Connect, at a time when interest rates are rising, it is important to point out to our customers that interest being charged on most asset finance products are fixed rate products.

Funding Xchange however sound a note of caution in their latest Lending Monitor – something which their CEO and founder Katrin Herrling pointed out to me when we met last week. The usual indicators of credit risk – like arrears and defaults – have been muted as a result of the increased liquidity provided by BBLS and CBLs loans provided during the downturn. SMEs’ true credit risk may not be obvious. But Funding Xchange warns that SMEs are running out of cash that protected them during covid crisis.

A similar point is made by Helen Thomas in the FT, when she notes that the current boom in buy-now-pay-later loans may be masking early signs of consumer distress.

For now Mike Randall, CEO of Simply tells me that all the lenders he speaks with are still experiencing low levels of arrears. This confusing picture may change in the eight weeks before the conference. Is this the calm before the storm?

Whatever happens we’re set for a fascinating conference.

Book now to secure your ticket at the reduced early bird price!

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