jlend
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Post by jlend on Jun 15, 2016 6:26:37 GMT
I would find it really useful to have a commentary just once a month to go with the various numeric data already provided. Something along the lines of your post. Perhaps something that could be seen when you log in and on the monthly email to lenders. You are not alone in expressing a wish for a form of commentary and this has been discussed. The prime issue isn't that this will provide another overhead (with an eventual message that would probably be compliant and PRd to death to the point of meaningless drivel stating the obvious), but one of providing advice. There is a danger that providing some words could be interpreted to mean safety or advice that losses are unlikely, " nothing to worry about". And then if something did go wrong, remembering that this is P2P lending with all the risks that entails with it's lack of FSCS protection, these " words" could be used against the platform to gain compensation somehow. It simply isn't worth the risk to try and provide some reassurance or a neutral update with words, when if we just provide factual numbers based on audit-able methodologies people can interpret this as they wish. Kevin. Thanks for the thoughts. I can see there would be work involved but in my experience it is not huge. I don't really buy the advice problem to be honest. There are 1000s of monthly performance updates every month in the investment world and I do think we are investors rather than savers. Many Corporate and Equity funds produce monthy reports that they are happy for everyone to read that are not linked to advice. I think it is a shame ratesetter don't feel the same way as some other investment providers as to the importance of these monthly upates at the moment but appreciate this is not a priority right now and may never be. Neil Woodford's company, one of the RateSetter investors, provides a monthly "fund roundup" of performance. This includes comments on historical events and at the end "outlook" comments. He might be able to help RateSetter in this area ? This will sound funny. I really appreciate the data transparency at RateSetter but sometimes it does feel a bit untransparent. Keep up the great work.
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Post by propman on Jun 15, 2016 17:06:28 GMT
On a slightly different note, I was trying to understand how the "Loan Book Performance by year" tied into the "Loan book downloads", both on the Information given for the Provision Fund. For 2014-16 the default rate in the latter is more than 7.9% higher than shown in the former. This seems too high to be explained by in day timing differences or the small proportion of institutional borrowing not covered by the fund unless the institutions have either been extremely unlucky or take loans with significantly higher credit risk.
Am I missing something or do these schedules not relate to the same performance criteria?
- PM
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Post by westonkevRS on Jun 17, 2016 17:24:59 GMT
propman, as a percentage on a percentage, the performance differencial you have calculated is quite possible. Certainly for the 2014 cohort. I cannot comment on the risk appetite of our institutional lenders as the volume is limited, and this wouldn't be appropriate. Although it's fair to say the borrower risk quality and required yield searched for by a hedge fund is significantly different to the average lender. Kevin.
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Post by westonkevRS on Jun 30, 2016 18:54:49 GMT
Comrades, A change is going to made to the coverage ratio to consider future contracted income on loans already booked: www.ratesetter.com/blog/article/announcing-the-introduction-of-a-target-coverage-ratioPersonally I was sanguine about not includng the future income, as I'm prudent and it was nice to have this in reserve. However as we've made the shift from up-front to lifetime (starting around 18months ago) this has started to no longer be feasible. Not I my because it has made the coverage ratio inaccurate, but at over £6m the expected income is too large to ignore. Note this £6m is only on loans already written, albeit could take up to five years to recoup. And obviously has to take a haircut for defaults and early redemption. Kevin
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Post by westonkevRS on Jun 30, 2016 19:05:34 GMT
Also by coincidence this piece of analysis has been published on AltFi (and may make it onto the FTs Alphaville): www.altfi.com/article/2077_digging_into_contingency_fundsIn a basic way, it's correct. But it does miss many of the finer detail such as the income over the lifetime, recoveries on debt management plans and rearrangements, security, giffgaff contractual safety guards, and the aged cleaning of the book - the straight line method for expected losses is fundamentally flawed. But hey ho, nice to be kept on your toes. Kevin.
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Liz
Member of DD Central
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Post by Liz on Jun 30, 2016 19:10:19 GMT
Comrades, A change is going to made to the coverage ratio to consider future contracted income on loans already booked: www.ratesetter.com/blog/article/announcing-the-introduction-of-a-target-coverage-ratioPersonally I was sanguine about not includng the future income, as I'm prudent and it was nice to have this in reserve. However as we've made the shift from up-front to lifetime (starting around 18months ago) this has started to no longer be feasible. Not I my because it has made the coverage ratio inaccurate, but at over £6m the expected income is too large to ignore. Note this £6m is only on loans already written, albeit could take up to five years to recoup. And obviously has to take a haircut for defaults and early redemption. Kevin I'm confused! Will he coverage ratio go up or down because of this? I'm also worried about Brexit and unsecured debt defaulting.
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Post by propman on Jul 1, 2016 12:07:24 GMT
Comrades, A change is going to made to the coverage ratio to consider future contracted income on loans already booked: www.ratesetter.com/blog/article/announcing-the-introduction-of-a-target-coverage-ratioPersonally I was sanguine about not includng the future income, as I'm prudent and it was nice to have this in reserve. However as we've made the shift from up-front to lifetime (starting around 18months ago) this has started to no longer be feasible. Not I my because it has made the coverage ratio inaccurate, but at over £6m the expected income is too large to ignore. Note this £6m is only on loans already written, albeit could take up to five years to recoup. And obviously has to take a haircut for defaults and early redemption. Kevin I'm confused! Will he coverage ratio go up or down because of this? I'm also worried about Brexit and unsecured debt defaulting. £6m all things being equal would lift the coverage ratio by over 0.4. However, the release says that the expected defaults will also be increased so we can expect the ratio to increase less than this, but they state that the ratio is expected to increase.
My above query was posted to highlight that it is very difficult to understand what the published information means as it appears that either there has been a huge hit to institutional loans (despite IIRC statements that they have random loans, so this would need to have been significant bad luck on their behalf in multiple periods), or it is very difficult to reconcile the different info provided. from an organisation that has shown an incorrect balance of on time loans for several years and chooses to take maximum advantage of the reduced disclosure in its accounts, I find this concerning.
I fear that these changes (notably an unknown "haircut" on future contributions that will be based on estimates of early repayments and default levels and timings) will make the values shown even less transparent and increase the impression on review that the statistics are designed to give an impression of transparency more than meaningful data.
Personally I would like to see:
1) Cash contributions received by the PF to date 2) Cash claims settled by the Fund to date 3) Actual loans in arrears for which the PF is liable for a shorter period than the 45 days currently used. 4) Non-cash included as an asset of the PF (ie the estimate of future contributions, but also any estimate of receivables from loans reimbursed). 5) Bad debt estimate on remaining loans based on that made when the loans were made 6) Current best estimate of expected additional bad debts.
Ideally I would like to see this broken down by periods not exceeding 12 months with fixed start dates (ie monthly data is comparable and not a different cohort).
While I appreciate that some items are commercially sensitive or might not be revealable due to data protection &/or confidentiality concerns. I don't think any of the above would fall into these categories.
That said, I understand why this change has been made and am glad that we will get some visibility of this important source of funds for the PF.
As for the target, I am concerned that they are proposing a maximum ratio below its current level unless the increase in expected bad debts is more than 10%. Personally I think the estimate of bad debts to date has been woefully optimistic. The expected rates have been consistently revised upwards and have still been under for the majority of the loans written, so a significant upward revision to bad debts seems in order.
I look forward to others thoughts on the subject.
- PM
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Post by westonkevRS on Jul 1, 2016 17:37:14 GMT
I'm confused! Will he coverage ratio go up or down because of this? I'm also worried about Brexit and unsecured debt defaulting. In the short term, nothing much will change. It is certainly planned and expected that the coverage ratio will increase. That's always been the plan, but deciding how to account for future contracted but not yet earned income has always been problematic. I don't know the impact of Brexit. Although personally I think it'll be far from the catastrophic scenario some forecast. And any impact will be long and drawn out, so as to be almost impossible to ascribe directly to Brexit. Kevin.
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Post by westonkevRS on Jul 1, 2016 17:47:08 GMT
£6m all things being equal would lift the coverage ratio by over 0.4. However, the release says that the expected defaults will also be increased so we can expect the ratio to increase less than this, but they state that the ratio is expected to increase.
My above query was posted to highlight that it is very difficult to understand what the published information means as it appears that either there has been a huge hit to institutional loans (despite IIRC statements that they have random loans, so this would need to have been significant bad luck on their behalf in multiple periods), or it is very difficult to reconcile the different info provided. from an organisation that has shown an incorrect balance of on time loans for several years and chooses to take maximum advantage of the reduced disclosure in its accounts, I find this concerning.
I fear that these changes (notably an unknown "haircut" on future contributions that will be based on estimates of early repayments and default levels and timings) will make the values shown even less transparent and increase the impression on review that the statistics are designed to give an impression of transparency more than meaningful data.
Personally I would like to see:
1) Cash contributions received by the PF to date 2) Cash claims settled by the Fund to date 3) Actual loans in arrears for which the PF is liable for a shorter period than the 45 days currently used. 4) Non-cash included as an asset of the PF (ie the estimate of future contributions, but also any estimate of receivables from loans reimbursed). 5) Bad debt estimate on remaining loans based on that made when the loans were made 6) Current best estimate of expected additional bad debts.
Ideally I would like to see this broken down by periods not exceeding 12 months with fixed start dates (ie monthly data is comparable and not a different cohort).
While I appreciate that some items are commercially sensitive or might not be revealable due to data protection &/or confidentiality concerns. I don't think any of the above would fall into these categories.
That said, I understand why this change has been made and am glad that we will get some visibility of this important source of funds for the PF.
As for the target, I am concerned that they are proposing a maximum ratio below its current level unless the increase in expected bad debts is more than 10%. Personally I think the estimate of bad debts to date has been woefully optimistic. The expected rates have been consistently revised upwards and have still been under for the majority of the loans written, so a significant upward revision to bad debts seems in order.
I look forward to others thoughts on the subject.
- PM
My view is that this level of detail is far to much for the 99% of lenders on the RateSetter site. If we did start publishing this level of data the overhead on how to report it would be considerable and very distracting for management. We are not a bank with 1000s of staff, we can provide a fair return because of our efficiency. And besides, every time anything is reported it is scrutinised in fine detail raising more questions that is really needed. We already publish our entire loan book, anyone that really wants half of your data requests can get the information. For the average lender it'll just be noise, and at worst data overload or confusing. Just my thoughts. But feel free to make the recommendation through the official channel, I.e. Customer Services. Kevin. P.S. reading my notes above it does read a little negative or hostile, and I apologise for that. We like transparency, but sometimes our days are wasted dealing with inane questions over and over. I'd rather employees focussed on sourcing low risk borrowers, to provide good lender returns. As I always said, if lending with RateSetter concerns you then perhaps your money should be somewhere 100% safe. I don't think providing all this data will make lenders any more informed.
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Post by propman on Jul 3, 2016 15:14:56 GMT
Kev, thanks for your response. Unfortunately the Loanbook is currently unavailable and I don't have a copy of this from before. But IIRC no info is provided on the provision fund, although I agree that the lates can be split between institutional and retail. My bigger points were: 1) While I understand that including a prudent estimate of future contracted contributions as part of the fund makes sense, it is different from actual liquid resources and so it is useful to know this when assessing the coverage. As for availability, I would be very surprised if you were not required to know the resources attributable to the Provision Fund so I don't accept that this would be onerous to supply. It would also only become more time consuming once incorporated into your data and so now is th ideal time to do so. 2) ISTM that the historic performance data on the fund is designed to allow the historic accuracy of your bad debt provisioning to be assessed. Changing the Expected bad debt for 18 months after a period end reduces the usefulness of this data. Whilst I understand that calculating the historic value might take some time. I would expect that you should have the contribution made by a loan in your original accounting entries when the loan was made and so this should be obtainable. Personally I am surprised that this data has not been requested by your institutional investors as an objective measure of the historic accuracy of your bad debt estimation, while the Experian check would normally have been compared with such a figure. 3) I appreciate that many investors do little or no due diligence before lending. However, information like the above would provide a robust way to dismiss unfounded scaremongering and reduce the nervousness caused by such articles as the AltFi analysis of the adequacy of RSs fund. 4) I understand that there will always be speculation on any info released. where this is obvious and inane it can readily be dealt with. However I truly believe that the more meaningful questions are better addressed by providing clear data. The more obfuscation in the info provided, the more scrutiny from those that understand what they are looking at much of which could be avoided by more readily understood info from the start. Of course this would make misleading investors more difficult, but that should allow RS to distinguish itself from less scrupulous suppliers.
- PM
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jlend
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Post by jlend on Jul 3, 2016 17:32:07 GMT
Comrades, A change is going to made to the coverage ratio to consider future contracted income on loans already booked: www.ratesetter.com/blog/article/announcing-the-introduction-of-a-target-coverage-ratioPersonally I was sanguine about not includng the future income, as I'm prudent and it was nice to have this in reserve. However as we've made the shift from up-front to lifetime (starting around 18months ago) this has started to no longer be feasible. Not I my because it has made the coverage ratio inaccurate, but at over £6m the expected income is too large to ignore. Note this £6m is only on loans already written, albeit could take up to five years to recoup. And obviously has to take a haircut for defaults and early redemption. Kevin I must say I am surprised that this quite major change is being done prior to the 3rd independent director appointment to the provision fund. It would have been great to have some independent oversight of the proposed change
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jlend
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Post by jlend on Jul 4, 2016 18:53:35 GMT
Surprised to see Ratesetter have removed the statistic that shows the Expected default rate by year of origination. They have included some words as to why below the table where it use to be.
I use to like seeing if loans as a whole were doing better or worse than expected even if the provision fund was fine. It was interesting to see what Ratesetter were assuming over time.
Was there a communication from RateSetter about that?
Has anyone noticed any other changes recently?
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Post by westonkevRS on Jul 5, 2016 9:41:49 GMT
Surprised to see Ratesetter have removed the statistic that shows the Expected default rate by year of origination. They have included some words as to why below the table where it use to be. I use to like seeing if loans as a whole were doing better or worse than expected even if the provision fund was fine. It was interesting to see what Ratesetter were assuming over time. Was there a communication from RateSetter about that? Has anyone noticed any other changes recently? The words say: " *Not applicable. Expected default rate figures are released by some platforms at the start of each year to forecast how loans written that year are expected to perform. These figures are not meaningful for the RateSetter model, since investors do not need to provide for defaults – the Provision Fund’s purpose is to cover defaults and each month we review its ability to do so (which is shown by the Coverage Ratio). What therefore matters on a year-by-year basis is whether sufficient money is put into the Provision Fund for each year’s lending to cover defaults for that cohort, and overall whether there is sufficient money in the Provision Fund to cover defaults across all active loans.
We take a data-based, objective approach by publishing the actual default rate for each year, along with the percentage of balances that have been repaid and how much of each year's contributions to the Provision Fund have been used for that cohort of loans, in addition to the Provision Fund Coverage Ratio. This is real-time, reliable data on how loans and the Provision Fund are performing." RateSetter official response to questions on this is “ the footnote hopefully gives you a good overview of why we’re no longer publishing the expected default rate (EDR) figure, but to summarise, the EDR figure is a prediction, and not something investors can or should rely on. It also doesn’t apply to the RateSetter model – it’s helpful to have an idea of expected defaults if investors have to provision for losses themselves, but because we have a Provision Fund, the Provision Fund Coverage Ratio is the more useful number. Unlike EDR figures, the PF Coverage Ratio is updated in real time and is based on real data (a cohort of loans that have been repaying for long enough to be considered a reliable sample).” As an example why it is not relevant, many lenders directly and on the forum indicate that our Provision Fund wouldn’t be sufficient because we had estimated the bad debt incorrectly for 2014. Although we did get this expectation wrong (for many reasons that I can’t go into), this neglected to highlight that we didn’t contribute to the Provision Fund a number equivalent to this expectation. We provided a much higher margin of contributions and that every cohort and under spent this contribution (i.e. bad debt less than Provision Fund contributions). But this isn't known to lenders and it's hard for us to publish this pricing as it is competitively sensitive, hence why it is better to remove this irrelevant and misleading EDR number. Kevin.
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Post by propman on Jul 5, 2016 11:48:01 GMT
Sorry for my ignorance, but can anyone point me in the direction of: "how much of each year's contributions to the Provision Fund have been used for that cohort of loans"
Many thanks
- Iain
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Post by spanner on Jul 5, 2016 14:00:14 GMT
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