March 8, 2024

How to challenge high street banks with Shawbrook Bank’s Dasos Kirtsides | Legal Thinking Podcast

As part of our Financial Headwinds campaign, we've been talking to various people in the finance and kind of banking industry about what's changing, what's been happening since the interest rate rises in the market. And so today we've brought on our very own Claire Wheatley, who's a partner in our banking team and Dasos Kirtsides, who's the head of healthcare at challenger bank called Shawbrook Bank that specialises in health and social care and other kinds of finance.

This podcast transcript has been edited in places for readability. You can also listen to our podcast on your podcast platform of choice – find it here >

Thanks both for joining us on the podcast. Great to have you here. Basically today we’re just going to talk about the kind of newer entrants into the banking space and a bit more about lending and the environment. So we’re looking to understand kind of the distinction between the main high street banks, those bigger players like Barclays, HSBC, all that kind of stuff, and the smaller new entrants on the market like Shawbrook.

So I guess that is literally a question for you, Dasos - how do you see yourself as different in the space?

Dasos Kirtsides: I mean, in terms of what we offer, our products are pretty simple in terms of what we offer and and that it’s a commercial loan, which is available to any UK SME.

But for me it’s specifically to healthcare businesses that are UK and registered with a particular regulator such as CQC, Ofsted or any other regulatory body, such as pharmacies and vets. Which is what all the high streets would offer as a product.

What we don’t do is challengers or smaller banks is that we don’t offer the day-to-day banking for businesses, so we don’t offer the direct debits to pay monthly bills, or have an account where you can sort of put through your day to day revenues. So we’re a pure lender that just lends to corporates in SME or property development, in real estate investment. So those would be the main differences. And obviously we’re a lot smaller which means that we can be a lot – we don’t have volumes and volumes of customers. We have a smaller pool, which means we can offer a more personal service without the call centres.

Claire Wheatley: I imagine that you can offer a quicker credit decision than the high street lenders?

Dasos: Yeah, absolutely. I mean, as we said, the products are the same, but where we think that we differentiate ourselves is the service. And where we feel that, you know, from our competitors, this is where we pride ourselves on being at the forefront of SMEs day to day challenges, rather than being reactive.

We spend a lot of time speaking to operators who are not clients. And that’s because we want to understand the bespoke intricacies of every business and then, you know, customers – Claire, it’s a good question because we get it asked all the time about what our USP is and why customers come to the likes of Shawbrook and pay slightly more than you would at a high streets. And customers come to us looking for a banking partner that not only understands their business and what they do, but one that could act with flexibility, agility and quickly, but with certainty. And it’s also vitally important to provide clients with a team that has the ability to deliver a bespoke facility suited to a healthcare business and understanding their growth plans and their day-to-day challenges around their revenue streams and regulatory environment.

Claire: And do you see yourself almost as a partner then in that respect - and also how did you deal with the pandemic?

Dasos: So two questions there. The partnership bit is absolutely paramount to what we do.

When we say partnering, we’re not a shareholder, we’re someone who sits alongside a business and helps them to fund their growth plans, fulfil their future ambitions, or even fix what they have in front of them at the time.

And if you’re just a banking partner – if you’re a banking client, then it sounds more transactional and actually, when you’re at a high street, it is more transactional because you haven’t got the time to sit down with every individual client and understand, like I’ve tried to articulate earlier, which is about the intricacies of the business.

Claire: And their challenges.

Dasos: And their challenges – day-to-day challenges, absolutely that. And when you understand, like us, we’ve got – I mean I’ve got 20 years healthcare finance experience, and the rest of the team have got similar experience, which means that we understand the revenue streams, we understand the regulatory environment, and we understand how an inspection works. We understand what outstanding to inadequate means.

So we don’t panic when a client goes from good to requires improvement. Because sometimes if you don’t understand what you’re – if you look at it from the coal face, going from a good to RI, you would absolutely panic. Whereas we at Shawbrook, you know, we set up this healthcare team because we understand that regulatory environment – we’ll take the CQC report, we’ll read it carefully, we’ll speak to the client, we’ll take the action plan and we’ll work with them towards getting it back to where it deserves to be and sometimes it doesn’t deserve to be RI either. But on the day, the inspection, you know, found something that was not not to their satisfaction, but it doesn’t mean that they’re not doing the right things.


Claire: Can it almost - can some of these categorizations be slightly subjective? I'd imagine they might be from the CQC.

Dasos: I mean, if you read the report and you read all the KLOES carefully, you know, well led there could be some subjectivity in there. There shouldn’t be because it’s a very – it’s a clinical report or inspection, and therefore it’s about whether the homes are looking after, you know, their residents or service users or patients, whichever the one they’re looking after, and that they’re doing it in the right way and that they’re caring and that they’re drugs dispension is correct and to to the doctor’s prescription, and that they’re looking – that’s all you want them to do really. You want them – you want to care home or residential care, whether it’s elderly, children’s or adults, specialist care to look after the people that they’re paid to look after, and CQC.

Claire: In a safe way. Yeah.

Dasos: Yeah, in a safe way. Absolutely. In a humane way and the inspections should look at that, not just be clinical. Subjectivity is a little bit – sounds like it should – it’s a bit of a flyaway comment, but actually it’s more looking at a care home for what they do, and how they do it – with sincerity and humanity rather than, you know, you’re not ticking a box.

Claire: And you’d visit all your care homes that you lend to?

Dasos: Oh, it’s an absolute prerequisite.

We visit absolutely every single customer that we we lend to, whether it’s a care home or whether it’s, you know, a pharmacy, veterinary practice or a dental practice. We absolutely – it’s one of the key, one of the key questions you get asked in credit is whether you’ve been there and have you met the management team, have you met the finance function, have you spoken to the ops directors, have you spoken to the CEO, have you looked at what they actually do? It comes – it brings it to life, Claire. You go to – you can sit – we could sit on the phone and talk about how you run a care home all day, but what I won’t get is the sense of actually whether the residents are happy, whether the staff are happy.

Claire: What the smell is.

Dasos: The smell test, the mum’s test – and you get that by actually going and feeling it, touching it, smelling it and that is absolutely paramount to everything we do, whether it’s – like I said, it doesn’t have to be residential care, it could be absolutely any business. You just want to make sure that, you know, the staff are being looked after – because we’re not funding a business for funding’s sake. We’re funding because we we want to help them improve and expand what they’re doing.

Claire: Yeah to help society, but I guess healthcare as a sector – historically has involved a little bit of reputational risk, which is another reason why you really need to inspect and get a feel for your customers.

Dasos: Absolutely. I mean, healthcare, if you look at it across the board, there isn’t one business in healthcare that isn’t looking after a human being or a or a live object – my dog will kill me for calling him a live object, but you know.

Claire: Person.

Dasos: A person – a live person. If you talk about you know, the veterinary business even, you know, we’re looking – you’re talking about a human life or a breathable species – and then when we look at residential care, and when we look at dentists and pharmacies and diagnostics and hospitals, we work with the NHS quite a lot. We fund a lot of their life saving equipment, and we go to see it in action because we want to make sure that the money that we’re funding, or the money that we’re providing for them to buy whatever they’re buying, whether it’s a care home, another one, or expanding or improving, is going towards saving lives and and improving patient outcomes.

Claire, is that the kind of service level comparison that you've seen between the bigger banks and these smaller entrant banks, is that generally what you see across the board?

Claire: I think it is, and I think – but I think the high street lenders – it’s patchy as to whether they’re actually that active in new lending or not, because I think during the pandemic of course the government encouraged them to make loans. But aside from that, and since then, I don’t really know how active some of them have been.

Probably without naming names – a couple of the high street lenders have said to me that they will do loans to existing customers, but weren’t very keen on lending to new customers, and that’s been the case for a couple of years. I think things are getting busier now, and perhaps with interest rates coming down, there’ll be more demand. So, you know, I’m encouraged that the year ahead might be more active.


Yeah. So getting into kind of the future of the banking industry, what opportunities are there for lenders such as yourself, Dasos, and others likethat’s an open question for you both, really

What opportunities do you think there might be in the years to come?

Dasos: Yeah, I think from our perspective, you know, as Claire touched on there, you know, new and existing clients, we almost treat them the same at Shawbrook because, you know, we meet a customer and we promise them a level of service and support going forward for the full term that they’re with us. And if we lend them, you know, an initial lend, and then forget about them, then that is being totally disingenuous from our perspective.

We would – I would be devastated if I promised a customer a level of service and support going forward, and that it goes into a portfolio management team after we lend the money, and their level of service is not as promised by myself – because we’re all one team and therefore the mission is the same for us. And we take a client and we – if they want growth, then we increase and if there’s a new to bank we treat them the same.

From a technology perspective, we see that coming in more and more now and the future of banks – you know, if you’re big and clunky, it’s going to be really difficult to turn that tanker around. But from our perspective, we’ve already gone digital in our asset finance business, where we’ve got a portal that can approve – auto decision and approve a loan within, or request a request within four hours, and have the docs out and paid out the next day – and that’s…

Claire: Wow.

Dasos: Yeah, absolutely and that’s something that we’ve been developing over the last three years.

Claire: Is that up to a certain amount - is it for small loans?

Dasos: Yeah, it’s for small – at the moment the limits are up to £250,000. For asset finance type one, if it’s a – I mean it’s got a tick a few boxes, with the algorithm in the background that we all had a hand in actually. It wasn’t something that the bank went to a third party and it came back with an off the shelf product.

We’ve actually spent the last three years – all the senior leadership, including myself, have been involved in putting that algorithm together so that it works. There’s obviously going to be some early teething problems, but it’s something that, you know, we’re going to try – I’m guessing we’re going to try and sort of in the next ten years, it’ll be rolled out across each product I’m guessing. Because we’ve also got it on the buy to let and property investment arm, another portal.

Claire: Are there humans involved in that credit decision, or is it all computer algorithms?

Dasos: The idea is that it’s complete auto-decisioning, through an algorithm that we developed. And what the manual part is, once it’s approved doing some admin in the background and getting the payout to our operations department, making sure that you’ve done all the KYCA, AML, but all that is done as well at the same time, using true narrative and another link to Companies House, etc. So there’s much less human interaction now as – then there used to be. Absolutely.

Claire: And what sort of loan sizes do you look at - what can you lend up to?

Dasos: From a commercial perspective, in healthcare, my remit is – the baseline is £1 million, up to £25 million on a single hold. And that’s whether you’re freehold or leasehold. So whether there’s freehold tangible security or whether it’s asset light. We look at cash flow lending either way, and therefore we treat both the same. So you can go up to £25 million almost unsecured, I would call it. Or you can go up to £25 million fully secure with freeholds. 

Claire: And, and your interest rates are slightly higher than the high street banks, but then they're paying for service?

Dasos: Yeah. I’m not entirely sure how much more we are more expensive, because we’re not, you know, we used to be – I would say five/six years ago when we sort of first started ramping up the commercial lending side, we were probably 2/300 basis points different to the high streets. But now we’re more like – we were talking about that this morning, internally, we’re more like 80 to 100 basis points difference to the high streets.  

Because what we’ve done over the last few years, especially post pandemic, we’ve managed our finances as a bank really well, and therefore we’ve been able to reduce our margins. Whereas a lot of our competitors and high streets have been increasing, and therefore the arbitrage between the two has has shrunk quite a bit. 

Claire: That’s interesting.

One of the questions that we had on this side as well was obviously private capital is something that comes into the equation.

Do you find yourself competing with a rise in private capital in this space, Dasos?

Claire: Sort of family offices?

Dasos: Yeah. I mean, that’s been around for – I mean, it’s been around for a while, actually, because, you know, since I’ve been banking, there’s always been competition from debt funds, family offices, private equity, you know overseas funds coming in, and bringing a lot of cash over and buying these assets.

But what they tend to do is if they want to maximise their returns, they need to borrow at lower rates than they charge themselves – or they borrow at, and therefore from their investors and therefore, if you don’t get the opportunity at the beginning of the transaction, if you’re patient and you wait a year or two, you get the opportunity again from those same debt funds.

So I don’t see them as a threat. I see them as an initial competitor. But actually if you get in front of them and you explain and articulate what you can help with at the beginning, and support from the beginning, and being there at the start of their journey and being able to support them in the long term, they kind of tend to stay in touch, and then come back to you at that critical point when they need some borrowing. So we are seeing a lot of – to answer your question is it’s a long way round of answering your question, is that we do see the funds coming in, but I don’t see them as a competitor or threat, actually.

Moving on to the kind of M&A side of health and social care, do you see that the current market is picking up? Some people seem to have this view that the current market, in terms of acquisitions, is heating up a bit. Is that something you're seeing on your side?

Dasos: Absolutely. I mean, 2023 was a tough year, and very challenging, you know, a challenging economic environment. And we saw a significant slowdown in M&A in particular. But at the same time, we continue to support our existing clients at that point.

If we look at this time last year, there was so much uncertainty around – interest rates were still rising, inflation was spiralling the wrong way, you had energy costs, we had wage inflation and therefore the price expectations from vendors versus the price expectation from purchasers were a long way off. And therefore, you saw a slowdown in activity. But what we did in the flip side of that, what we did see is those vendors saying, okay, we’ll stick with what we have, but I’m going to continue growing, and if you miss the buyer won’t buy me now, then you’re going to pay a higher price when things get back to normal next year. So, we saw quite a bit of activity supporting both existing clients and businesses that were coming off the market and saying – okay, we’ll continue to grow and wait, and then we’ll go back for sale next year. And 2024 comes and there is a lot of the uncertainty is gone.

Claire: I think the only uncertainty really is probably the general election which is looming but… It’s less of a concern, I would think, than it has been in the past, because Starmer is saying that by and large he’s not really going to change the tax system. If you believe him.

Dasos: Yeah. I mean we had a – we had a really good conversation with a potential client yesterday, that’s in a space that could have some political threat, and their view was that if Labour do come in, that they’ll see a ramp up in this particular space. But worst case – or not worst case, but if on the flip side, if the conservatives stay in, they’re going to continue seeing the growth and trajectory that they’ve been seeing over the last five years in this space, and like you said, probably independent schools are more of a threat because of the VAT treatment.

Claire: That’s a worry.

Dasos: That’s a big worry. But daycare nurseries, which we like and we’re involved in, has got -there’s some positives either way in terms of the government funding for childcare. So I’m kind of – we are looking at it with – you know, with great interest, obviously. But we’re hoping that it won’t cause any economic uncertainty. 

Claire: I think the most damaging thing was the, you know, the problem with Liz Trust – Truss not Trust! Yeah – it was just the chaos in the markets, no one really knowing what interest rates were going to do, impossible to lend when you just don’t know what the interest rates are going to be next week or next month and how to stress test.

Some bankers explained to me, you know, do you stress test at 3% above margin or 4% above margin? At that time when interest rates were going up almost every month, I think lending was particularly difficult, but at least interest rates, you know, have stayed on hold now for a few months and may even be reduced in the coming months. So it’s probably looking a lot easier to lend.

And just to kind of close off a bit, just to get further into the idea of the future of the banking industry, basically, where - just candidly, where do you see it going?

Do you see more challenger banks coming up to, you know assuage the needs of people who maybe felt a bit cynical about the high street banks, or do you see high street banks continuing as they are, or getting bigger or - where do you both see it going?

Dasos: I mean, from my perspective, I kind of hope that challenger banks continue to come up because the high streets have been monopolising the market for too long and, and this – you know, the crunch was only ten years ago, and the PRA decided that we needed more competition and needed to give consumers more of an option. and we are a brilliant option, because we work like a normal bank in terms of – if you – the look and feel of it, in terms of our products are the same as what you get in a high street.

There is a lot of room for consolidation in the in the challenger space, and there has been – there have been a few in the past. If you look at, you know SVB they merged with HSBC and there’s been a few others in the past. I’ve been involved in – back in the days with Alliance & Leicester and TSB and what have you.

But one thing that technology won’t take away is that you need that human factor on the end of a phone. Decisioning an auto decisioning will just make the whole process a bit more efficient. But we need humans to be able to interact with customers, because I still haven’t come across two businesses that are exactly the same. And therefore, no matter what AI or algorithms you use, they’ll never be able to think like a human being or actually like an entrepreneur – because we at Shawbrook, we try and pride ourselves on being specialists and actually thinking like the entrepreneur and being entrepreneurial when we think about debt structures and their business and their growth plans and I don’t think you’d be able to get AI to think that way.

And therefore, I think technology will continue to be developed, just like they are in care homes, to help efficiency, but will never take away that human factor in making sure that you work with a customer that needs your help and support and understanding the day-to-day intricacies of their business.

And, Claire, what do you think about the future?

Claire: Well, I completely agree with that. I think particularly in the healthcare space, human interaction is more important than probably anywhere else. And as you – I think you mentioned a mum’s test, which I assume means would you want your own mother to actually go in a particular care home and I mean, that that is critical.

Human interaction is vital really, for the ongoing management of the matter because with the high street banks, you get a team who do the business development, who find the customer, and they’re involved in the loan process, and negotiating a loan agreement, and then they just pass it on to a maintenance team. And that must be very disconcerting for the customer.

Dasos: Yeah absolutely. And we – because everyone at Shawbrook is an amalgamation of people that have come from a lot – the majority from high street banks. And therefore when we sat down to decide what kind of model we want to build – customer model, we have got a portfolio management model where we have an an origination team that goes out, wins the deal, structures it, gets it to completion.

But the portfolio management team are well embedded into the origination process and therefore when you get to the end and you complete the deal and you pass it on to the portfolio management team, it’s very much a very close collaborative effort where you will never be left – as a customer, you’ll never be left alone with just the portfolio management team, and never speak to your initial origination RD because that’s something that we were really, really conscious of, that we’re not going to be the old cliché at the high streets was like, lob it over the fence and never see it again.

Claire: And leaving the poor customer in the lurch.

Dasos: Absolutely, you know.

Claire: Also, because you build up trust during that process, it’s quite stressful.

Dasos: Yeah. And like I said earlier Claire, it’s, you know, I – we as – me and my team, we go out and we promise a level of service that’s going to be there and continue until the end. And therefore if we pass it on to a team that we don’t have any trust in, or faith in that they’re going to deliver that service, then why would I even be here – and why would I why would I sell that dream to a customer knowing that I couldn’t deliver it.

Claire: Would be disingenuous.

Dasos: Yeah, absolutely and one thing that we – our service is where we feel that we differentiate ourselves, and that and that collaborative approach between the origination teams and the portfolio management teams, which is all embedded within my team – the healthcare portfolio management team, and we go out to meetings together, we write credit papers together, we write annual reviews together, we look at MI together, we look at covenant testing together. And we make sure that if there’s any issues, that we face it together with the client, not in a – and that’s one of the things that I think that the smaller challenger banks have got an advantage over the larger banks where they’ve got the bigger banks -because they’ve got masses and masses of volume, they have to have these call centres in countries where staff are cheaper – it’s cheaper to run than here.

Claire: Yes and we’ve all experienced that!

Dasos: Automatic press 1-9.

Claire: Your call is important to us – and you think – no it isn’t – it really isn’t!

Dasos: Please hold. Your call is important to us. We’ll be with you soon. You are number 356 in the queue!

Well, I think from my perspective, that’s covered off everything we wanted to cover. Thank you, both!

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