Credit Management November 2022

CORPORATE insolvencies
decreased by 13.5 percent
in September 2022 to a
total of 1,679 compared to
August's total of 1,940, and
increased by 15.6 percent
compared to September 2021's figure of
1,453.
Corporate insolvency figures
were also 11.3 percent higher than
in September 2019, while personal
insolvencies increased by 4.5 percent
to 10,013 in September 2022 compared
to 9,584 in August, and were 0.5 percent
higher than September 2021's figure
of 9,967. Personal insolvencies also
decreased 18.5% from September 2019's
total of 12,280.
Christina Fitzgerald, President of
R3, the insolvency and restructuring
trade body, says that the corporate
insolvency figures provide a clear
insight into insolvencies before,
during, and after the pandemic: “The
monthly fall in corporate insolvencies
is due to a drop in Creditors’ Voluntary
Liquidations, while the year-on-year
increase has mainly been caused by
a rise in Compulsory Liquidations,
NEWS FOCUS
Directors shutting up shop before
that choice is taken away from them
ONE of Europe’s leading open banking
platforms, Tink, is urging lenders to
prioritise upgrading creditworthiness
assessment models to ensure more
accurate lending decisions.
Traditional lending models are
broken, it believes, and against a
backdrop of the cost-of-living crisis, a
blinkered view of income and expenses
is no longer fit for purpose. As the
economic crisis worsens, Tink says
better decisions on lending are needed
to protect and support consumers and
businesses who might be struggling
with affordability over the coming
months, while reducing the risks to
lenders from a potential new wave of
defaults.
According to Tink’s 2022 survey of
financial executives, two-thirds (68
percent) of UK lenders have tightened
affordability criteria since the
pandemic, but blind spots still exist in
their credit assessments. This has led
to some people being denied access to
borrowing unnecessarily.
For example, UK lenders say that
some of the main reasons that people
which is likely to be due to the end
of legislation around winding-up
petitions. “The increase in corporate
insolvencies between September 2022
and September 2019, on the other
hand, is due to a significant increase
in the number of Creditors’ Voluntary
Liquidations.”
Christina says this is likely to
be due to the triple whammy of
the withdrawal of COVID support,
the economic turbulence, and the
challenging business climate resulting
in directors feeling that they are unable
to continue and choosing to close their
businesses before that choice is taken
away from them: “Businesses have
been operating against a backdrop of
real uncertainty in recent weeks and
months,” she continues.
“A volatile pound, a decline in
consumer confidence and lower
household spending have led to weaker
economic growth, and it seems likely
that these conditions will get worse
before they get better. With living
costs rising, both business owners
and employees are under significant
financial strain as rising costs have
Accurate lending impacted by
outdated assessment models
are denied credit include the inability
to verify identity or legal status (41
percent) or the inability to access
payment history (35 percent). Mirroring
these findings, another Tink study
finds that UK consumer cohorts are
also citing unfair assessments, as a
third (33 percent) of self-employed
workers say their employment status
has been an obstacle for them getting
a mortgage, and a further 31 percent
believe it has hampered their ability to
obtain credit.
The research is said to unveil
two stark truths about traditional
underwriting methods: firstly,
some people who can afford credit
are being excluded because of
outdated credit scoring models;
and the static, retrospective nature
of traditional credit checks means
there is no robust way of protecting
consumers if economic circumstances
change and affordability becomes an
issue.
Tasha Chouhan, UK & IE Banking and
Lending Director at Tink says it’s clear
many lenders still rely on traditional
meant rising salary demands and
increasing pressure on margins,
which some businesses haven’t,
unfortunately, been able to meet.”
Christina believes that sky-rocketing
energy bills are also a major challenge.
She says that while the recently
announced emergency support
package will go some way towards
mitigating these concerns, it may not
provide enough of a safety net: “When
it comes to personal insolvency, the
monthly increase has mainly been
caused by a rise in the Individual
Voluntary Arrangement (IVA) numbers,
which suggests that the issues around
the cost of living are causing more
people to seek help with managing
their debts.
“The past couple of years have been
extremely tough on many people’s
personal finances and household
budgets are significantly more
stretched than they were a year ago.
The rise in the cost of living is showing
no sign of slowing down, real wages
have fallen, and more and more people
are being forced to borrow money to
pay their bills.”
credit checks to determine eligibility
for loans: “There is no place for such
models in our current economic
climate, and the sooner this is
recognised, the better the outcome will
be for both lenders and consumers.”
“New forward-looking models are
drawing on open banking technology
to provide a holistic picture of people's
finances. It’s vital to protect potentially
at risk or vulnerable consumers
from problem debt or default as the
economic climate worsens. At the
same time, it’s key to promoting
financial inclusion, as people now
more than ever need access to safe,
affordable, and regulated borrowing
options.”
UK lenders can adopt new open
banking powered affordability
assessment models which anticipate
future affordability, using up-to-date,
holistic data. Encouragingly, Tink’s
findings indicate a growing appetite
to embrace open banking powered
technologies, with 41 percent planning
to adopt digital solutions for datadriven
credit scoring.
Brave | Curious | Resilient / www.cicm.com / November 2022 / PAGE 8