With 2021 drawing to a close, attention naturally turns to the year ahead. Whilst we are still in the midst of a global pandemic, the banking and finance industry continues to forge ahead at pace. As we move into 2022, there are three areas I would urge borrowers and lenders alike to keep front of mind.
- ESG, with a particular focus on sustainability
ESG has been high on the agenda for a while, but its importance has been turbo charged by the recent COP26 summit. This is a particularly fast moving area and it is likely that a renewed focus on pushing forward with ESG programmes will quickly filter down to the mid-market and SME space.
The prevalence of Sustainability Linked Loans (SLLs) is likely to keep increasing and it is expected that there will be a wider range of ESG and particularly sustainability linked loan products introduced next year, which will see lenders demanding more commitment to ESG issues and borrowers incentivised in a range of ways.
- Digitalisation of banking and finance
There has been phenomenal growth in the digitalisation of banking, both in terms of finance systems and new products, including the emerging digital assets market. This is only set to continue.
While the digitalisation of commercial lending processes has huge potential to make things more streamlined and faster, as with all change, there is a risk that if not implemented and communicated correctly, new systems and ways of doing things can instead complicate and confuse matters.
- Post-Covid-support clean up
Although the pandemic is far from over, the initial support offered by the government such as Coronavirus Business Interruption Loans (CBILs), has come to an end, and this will present both challenges and opportunities in the coming year.
A recent survey by accountants Kreston Reeves found that a fifth (20%) of businesses do not believe they will be able to repay COVID borrowing, which is troubling. However, one clear trend that emerged over the course of the pandemic is the increasing resilience and availability of alternative lenders and challenger banks. These types of lenders may well become increasingly attractive to businesses looking to refinance or secure funding for growth.