Resilience is the new normal
How to proactively manage a lending portfolio in uncertain times
We analysed a random sample of 1,820 SMEs across multiple industries using our unique approach to resilience analysis. Seven distinct archetypes emerged. These archetypes outline clear trends and traits which provide valuable insight to help leaders proactively segment and manage SME portfolios in uncertain economic conditions.
We have developed an approach to portfolio analysis we believe provides much needed insight today: our approach to resilience analysis starts with the SME Z-score and combines it with core financial metrics. While some companies started the pandemic with stronger business fundamentals than others, no business had sufficient time to prepare for the existential threat posed by the pandemic nor could they have anticipated the extraordinary levels of financial support offered by governments across the world. Every business had a unique starting point when the pandemic hit and took a different approach to managing their way through extreme uncertainty.
Ghosts: Despite starting the pandemic in a high risk category and with the second worst SME Z-score of any archetype, Ghosts suffered only modest financial declines in the first year of the pandemic. A 1% decline in turnover was matched by a 1% decline in operating costs. An 11% increase in total debt was matched by a 12% increase in assets. However, Ghosts have over 80% of their debt in short term maturities and 80%+ debt to asset ratios. When combined with low (3% on average) net income margins, Ghosts are already operating closed to distressed levels and have little room to manoeuvre a path back to healthy territory. They make up the second largest group of SMEs in our sample.