SME division rounds off 2020 on strong footing

February 11, 2021

Enrico Fagioli's editorial

Head of SME

I am delighted to be able to report, after a torrid year - for our economy, country and society, which have all been knocked sideways by the Coronavirus pandemic – that illimity’s SME division is rounding off the Financial Year 2020 on a very strong footing.

We have diversified by entering new segments of the market, maintained strong business origination, and were buoyed by a resilient 2020, all of which means the underlying quality of our SME loan book remains very high, with no tangible deterioration, and our asset quality indicators are solid.

SME success

We have racked up a number of key wins in the past year. Working with our Distressed Credit Investment and Servicing team, we successfully entered in the attractive UTP (Unlikely To Pay) portfolio market in 2020. We have exploited public guarantees instruments in lending to SMEs, which gave very profitable returns on equity, which we expect to continue into 2021. And we have started to book tangible profit on credit revaluation events in our Turnaround business, which is also set to continue this year.

Factoring has grown strongly, already returning to pre-pandemic levels, and our high yield corporate bond investment got off to a good start in 2020. The positive results recorded in the year confirm our strategy and we expect to increase the capital allocated to this area of the business in 2021.

Our business origination accelerated strongly in the last part of the year, with a specific focus on deals with public guarantees, totalling over €1 billion since inception. This strong momentum is continuing into 2021, we remain highly selective in terms of business opportunities – since our inception, we have analysed 489 deals, and signed just 90.

Throughout 2020, we have further diversified our loan book, which is now spread across more than 25 sectors. Significantly, we have reduced the amount of our exposure with moratorium requests from €86 million, as of September 2020, to €47 million by January 2021, now representing just 5%.

Rally in Q4 2020

As anticipated, business origination in Crossover and Acquisition Finance accelerated further in Q4, with nearly 50% of origination coming from lending with public guarantees. Between deals where we have already agreed the terms with the clients, and the near-term pipeline, we have an additional €77 million worth of potential business.

Facing a difficult first half of the year, our Turnaround segment rallied in Q4 with a jump in business origination – with deals with public guarantees in this quarter representing 66% of the total. The features that make our Turnaround segment attractive – such as early repayment of new finance loans – materialised over the year, and especially in Q4 to deliver a total profit of €6 million for the Financial Year.

Our Factoring segment continued to grow in Q4, bringing the total turnover for the Financial Year to €736 million, nearly threefold what we achieved in just the previous year. This impressive jump is driven by our growing number of clients, reaching nearly 120, with related debtors surpassing 500.