In a new report, Scope notes that a  thorough understanding of the lender’s business model, appropriate peer comparisons and a correct assessment of expected parental support (if appropriate) are essential elements of the analysis, which pose unique challenges when assessing specialised lenders.

The report includes a description of several business models that Scope has encountered in its rating and research activity so far, including financial leasing and factoring companies, specialised mortgage lenders and specialty consumer finance groups.

Scope’s report notes that the world of specialised lenders often overlaps with the banking world, as the former can be part of banking groups or may compete, directly and indirectly, with banks. “Much of the analysis, including many of the quantitative ratios used when judging credit risk, are the same, although lenders tend to develop unique features which makes a thorough understanding of the business model paramount”, said Marco Troiano, Executive Director at Scope and author of the report.

According to Scope’s report, certain specialised lenders face a high risk of disruption from innovative fintechs. Competitive advantages are often thinner or less defensible than they are for larger banking groups, due to the lighter regulation. Business plan analysis and management interviews help analysts assess the issuers’ readiness to fend off new competitors.

Download the report here.