OakNorth boss Rishi Khosla is ready for the next economic crisis
Rishi Khosla has become somewhat accustomed to dealing with economic crises over the past seven years.
Since his digital lender OakNorth obtained its full banking license in 2015, he and co-founder Joel Perlman have steered the bank through the protracted Brexit tumult and pandemic hits, while avoiding the worst of a wave. of small business insolvencies and defaults they have left in their wake.
As OakNorth’s small business client base now braces for historic inflation and a potential recession, he says the bank is not changing course.
“We had the vote on Brexit, and since then I would say we’ve had pretty much continuous ups and downs from a macroeconomic perspective in this country,” he says AM from the city.
“Now I think there’s going to be a pretty tough environment as we go forward. The market and the industry as a whole will see a spike in defaults, and so I think our default level will definitely increase.
Crisis planning, however, has become the norm. In January 2020, as covid began to seep into the public consciousness and trigger the first signs of an economic downturn, Khosla says OakNorth bosses were already in the war room.
“By the time we got closer to the possibility of a lockdown, we were already sitting down with our customers and actually saying ‘for your particular subsector, this is how we see you operating’.”
With the possibility of a recession looming, he says the company has more than 270 scenarios planned for its various subsectors that it passes on to customers to help them prepare.
The shift from crisis to crisis has also played its part in displacing lenders like OakNorth from the public psyche. The firm has taken the lead and provided £1.1billion in new loans to support UK businesses between March and October 2020, including over £400million under the Emergency Loan Schemes for government business interruption.
“We’ve gone from banks that were sort of the villain of the financial crisis to banks that are the way to actually help shore up the economy during covid,” Khosla says.
That’s not to say the lender has been left unblemished in the covid rush, though. Former Chancellor Philip Hammond, who served as an adviser to the firm, mentioned his loan services to a government official for which he was reprimanded amid fallout from the Greensill lobbying scandal.
Indeed, Khosla is somewhat unique among fintech founders for his well-known ties to the conservative party. His name is rarely mentioned in certain sections of the press without the prefix “conservative donor”.
Although it’s not a nickname he enjoys, Khosla says the donations have opened doors for the business.
“We didn’t know anything about commercial banking and we didn’t have a seat at the table in conversations with companies regulated and influenced by government policy,” he said. AM City.
“And if you remember at that time, the government had a policy to increase competition in the banking sector, which led them to open up the licensing process for new entrants.
“And yes, personally, I donated to the curators, and that allowed us to at least be in the ecosystem on a broad basis.”
But, he says, it’s important to note that he “was” a conservative donor, rather than “is” a conservative donor.
Regardless of political leanings, it has certainly been a rosy rebound from the pandemic for OakNorth. The company reported a 73 per cent rise in pre-tax profits last year to £134.5 million after a surge in lending in 2021 as businesses resumed after covid.
A $440 million funding round in 2019, led by Softbank’s Vision Fund, valued the company at $2.8 billion, and Khosla said windfall earnings mean there’s no need another funding increase on the horizon.
Although he is coy about a potential move to the public markets – “we may, we may not” – he says London has its pitfalls as a hypothetical listing destination .
“The biggest challenge with the London market is that there isn’t a mature market for growing businesses,” he says.
“If you look at the nature of the London market, it’s very focused on companies that generate income and yield, compared to NASDAQ-type growth markets.”
For now, he says, OakNorth will remain a private company and continue to operate as before.
And as another economic crisis looms on the horizon, businesses across the country are hoping it will continue to do what it does very well.