Dear investors,
We have been monitoring the escalation of the COVID-19 virus since January 2020. Upon its emergence in Wuhan, China, the virus has impacted many associated supply chains and has increased business volatility and risk. Our growth strategy is pivoted on SMEs and their linkages - upstream with their suppliers and downstream with their clients. Through this ongoing outbreak of the COVID-19, we have implemented the following measures to monitor and manage risks to our portfolio during this time.
A. Credit Assessment Approach: We expect non-performing loans (NPLs) of SME-focused lenders to come under more pressure, especially due to possible increased defaults by SMEs operating in F&B, travel, cross-border trade, and service industries that are dependent on labour from affected countries in Southeast Asia. As originators, we have taken the following preventive measures:
Assess existing issuers’ degree of dependency of revenue and/or other linkages on affected countries. We are also taking a reduced exposure of credit limit granted to SMEs. This is being viewed on a case by case basis.
Forecast of issuer’s revenue/cash flow for assessment of all new financing submissions and renewals are subjected to a haircut due to a weaker economic outlook.
Be agile in reacting to changes in the macro economic environment to tighten the ratios and reduce limits and tenor, and increase rates to adjust for increase in risk
B. Short Term Notes: We have started further reducing the average loan tenor on a portfolio basis to mitigate mid to long term risks. For example, issuers that were previously eligible for a 12-month tenor would be provided a shorter term loan, while we assess their debt servicing capability. This allows us to rebalance our portfolio at more frequent intervals and be better placed during the indefinite duration of COVID-19 and its impact on global markets.
C. Closely Work with Issuers who have Large Exposures: We recognise that SMEs who have borrowed larger quantums are especially vulnerable due to their high credit exposure. In order to mitigate and control the concentration risk across your portfolio, we will either reduce limits or restructure facilities on our issuers’ loans, on a case by case basis.
D. Credit Monitoring and Remedial Management: We continue to monitor the performance of our portfolio and its underlying risks very closely. On top of existing risk management activities, our collections team has:
Inherited recovery efforts from relationship managers (who are normally the first point of collections) instead of stepping in only after 1 month. This will help us to determine early on if issuers require a restructure in their repayment plan in order to fulfil their obligations to the platform investors
Been instructed to proactively restructure loans where we see early warning signs.
We will continue to carefully manage our key indicators and evolve our risk management capabilities depending on the global economic situation. On top of this, Funding Societies’ employees have all been required to work from home unless there is an absolute need to be in the office for meetings. All employees also go through temperature checks before entering the office premises and are mandated to maintain physical spacing of 1m apart, according to MOM guidelines. We are committed to ensuring our employees are healthy so that our business remains of service to you through this period of volatility. If you have any questions, please contact us via our live chat or email us at invest@fundingsocieties.com.