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Post by geoffrey on Nov 20, 2014 12:35:34 GMT
Yes, very helpful note. I don't want to nit-pick or be mean to the person who wrote it, but for official published info someone who knows the difference between "it's" (contraction) and "its" (possessive) should look over material before publishing (since it comes from an official blog).
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Post by davee39 on Nov 20, 2014 12:50:31 GMT
Yes, very helpful note. I don't want to nit-pick or be mean to the person who wrote it, but for official published info someone who knows the difference between "it's" (contraction) and "its" (possessive) should look over material before publishing (since it comes from an official blog). I call for all apostrophe pedants to be banned until they show true repentance.
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Post by uncletone on Nov 20, 2014 14:01:40 GMT
I call for all apostrophe pedants to be banned until they show true repentance. Is it alright to mention the semicolon followed by "and..."?
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Post by geoffrey on Nov 21, 2014 16:40:52 GMT
I call for all apostrophe pedants to be banned until they show true repentance. Suitably repentant and chastened. However, I would just point out that my gripe wasn't with wrong apostrophes in a forum post, it was with the fact that the information is taken from a formal RateSetter blog post, i.e., official information.
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jlend
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Post by jlend on Nov 26, 2014 10:42:49 GMT
Something that I have been thinking about lately and further sparked by another thread on diversification, is the coverage ratio of the provision fund over the estimated claims against it. I know RS have been deliberately trying to increase this for at least a number of months (if not years) and generally, I welcome this. However, I was curious on whether RS have a particular target in mind for this ratio and furthermore, what would individual lenders like to see? At the time of writing, its 2.26. My gut feeling is that a ratio of 3.0 would be a reassuring long term goal but cant provide any reasoning behind this. Do people think this is too low?....or even too high? I believe I read somewhere recently that Zopa (who have a ratio around 1.2 but I could be wrong on that) are rightly or wrongly, happy with their current coverage. Their approach does seem to based on the aggressive reach for 'best buy' status which may tie in with this but could very well not be the full story. Any thoughts? I see the coverage ratio has dropped from 2.26 in September to 2.0 now as debts have realised
Be interesting to see what it is in a couple of months time and whether it drops back down to 1.9 which it was in November 2013
I don't know whether the loans that are one month or two months late are particularly high or not at the moment
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Post by westonkevRS on Nov 26, 2014 22:08:19 GMT
Sorry to be pedantic, but "as debts have realised" isn't true. The coverage is based on expected losses not realised, expectations taken from a single 12 month cohort from 13 to 24 months previously. With a number of very prudent measures to extrapolate this annual cohort to it's end conclusion (full amortisation).
The fact that the Provision Fund continues to grow is that these forecast defaults haven't yet been replicated, and certainly not to the prudent "straight line" extrapolation. The expected loss continues to grow as we grow the outstanding balances, and hence the coverage decreases in the short term. I expect and hope that these expected losses do not materialise in full, but I'm a prudent type of Risk Manager and would rather over promise defaults and under deliver (if you get my meaning). Especially when so publicly and transparently reported. I don't want to look "like a muppet"
Now if you see the Provision Fund start to drop materially over a number of months then the comment would be true. But it technically isn't. Patience, my friends.
Kevin.
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jlend
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Post by jlend on Nov 27, 2014 9:16:22 GMT
Sorry to be pedantic, but " as debts have realised" isn't true. The coverage is based on expected losses not realised, expectations taken from a single 12 month cohort from 13 to 24 months previously. With a number of very prudent measures to extrapolate this annual cohort to it's end conclusion (full amortisation). The fact that the Provision Fund continues to grow is that these forecast defaults haven't yet been replicated, and certainly not to the prudent "straight line" extrapolation. The expected loss continues to grow as we grow the outstanding balances, and hence the coverage decreases in the short term. I expect and hope that these expected losses do not materialise in full, but I'm a prudent type of Risk Manager and would rather over promise defaults and under deliver (if you get my meaning). Especially when so publicly and transparently reported. I don't want to look " like a muppet" Now if you see the Provision Fund start to drop materially over a number of months then the comment would be true. But it technically isn't. Patience, my friends. Kevin. Thanks for putting me straight :-)
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c88dnf
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Post by c88dnf on Dec 1, 2014 17:49:01 GMT
As a result of activity in another thread today (Dec 1st, 2014), there is now data from Zopa regarding their coverage ratio for Safeguarded loans. These figures are only correct for a moment in time and have to be weighed against your own view of the providers' acumen in assessing risk and the likelihood of their borrowers defaulting.
Zopa Safeguarded loans - £290.6M Safeguard fund allocated against expected defaults - £5.1M Thus calculated expected default rate = 1.76% Total Safeguard fund - £6.4M Maximum default rate which can be tolerated = 2.20%
Ratesetter loans - £256.6M Anticipated default rate - 1.9% maximum Provision fund - £9.7M Maximum default rate which can be tolerated = 3.78%
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Post by westonkevRS on Dec 12, 2014 17:24:09 GMT
We have had a few emails and telephone calls regarding the reduced reported coverage ratio on the web page. For the sake of fairness and transparency (please, nobody get upset or go off on one) I copy below the email response. Note that the invite is true for you lovely forum members should you wish to visit RateSetter (and already be a lender, and not work for the competition!):
"I appreciate you concern, and with limited data to go on (i.e. the fund value, and the coverage ratio) it might look alarming.
As I have posted on the independent P2P forum the coverage is based on expected losses, and not actuals. This expectation is taken from a single 12 month cohort from 13 to 24 months previously. With a number of very prudent measures to extrapolate this annual cohort to it's end conclusion (full amortisation). As the average RateSetter default occurs on month 9; taking this particular time slot results in the highest estimated bad debt possible, i.e. I’m extrapolating forward from this point therefore multiplying the expected debt up to five-fold for a 5-year loan taking no benefit from the flat-lining of bad debt as the portfolio cleans itself.
The fact that the Provision Fund continues to grow is that these forecast defaults haven't yet been replicated to this very high and prudent "straight line" extrapolation. In your email 3 weeks ago the Provision Fund was £9.5m and it is now £9.9m. The expected loss continues to grow as we grow the outstanding balances, and hence the coverage decreases in the short term. I expect and hope that these expected losses do not materialise in full, but I'm a prudent type of Risk Manager and would rather over promise defaults and under deliver (if you get my meaning). Especially when so publicly and transparently reported.
Around Q2 2015 I expect the coverage ratio to grow again. However in the meantime if you see any slowing of the Provision Fund value then feel free to become concerned. For example if the Provision Fund reduced to below your preferred threshold, say £7m, then you could stop lending. For my part, I have “skin in the game” and continue to invest in the five year money with my personal savings.
This is hard to explain via an email and I would rather do it in pictures (or PowerPoint actually). If you ever wish to visit the offices I would gladly share the wider picture with you to allow you to make a lucid decision on the safety of the Provision Fund. Please pick a date and time, and I’ll be available. I would also add that Retail Money Market Ltd has reported it’s results to Companies House, showing the robust financial health of our platform alongside that of the Provision Fund. This should be reassuring as Platform risk and Default risk should be any P2P lenders primary concerns.
Kevin. "
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jlend
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Post by jlend on Dec 13, 2014 10:29:40 GMT
westonkev, thanks for the continued focus on "prudent" figures and your update.
I for one would rather you continue with this approach so that the coverage ratio you present is a prudent ratio in your opinion rather than a potentially optimistic one.
Of course the fact that Ratesetter now shows a coverage ratio of 1.83 when I see moneyball said it was 2.26 in September will be un-comfortable for some lenders. That's understandable.
But that is better than presenting a coverage ratio that you would be concerned about.
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spiral
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Post by spiral on Dec 16, 2014 9:14:29 GMT
When I signed up about 18 months ago, the ratio was 1.6. They also quoted a second figure back then which was about 6.5 which represented the "current ratio". The 1.6 looks at what the expected bad debt is over the lifetime of the loan whereas the 6.5 was the here and now figure (it is a bit like the ponzi effect of using tomorrow's bad debt provision to support today's bad debt) . IMHO, the coverage ratio is only really ever going to be an issue if either RS fold or fail to grow. The second scenario would give them time to make adjustments to support the fund whereas total failure of the platform would require the coverage ratio to hold true (as nothing new is being added to it) in order for us all to receive all our money back across the subsequent 5 years.
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Post by p2plender on Jan 18, 2015 8:30:34 GMT
1.5 now
lowest I've seen I think.
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Post by westonkevRS on Jan 18, 2015 9:26:53 GMT
Part of me regrets the prudent methodology we have chosen to implement, as in some cases the coverage ratio is forced to drop every time we complete a loan.
The expected losses calculation uses nearly the peak month of defaults (12months extrapolated to 60months, with peak default at 9months, so takes no advantage from the flattening curve as older loans don't typically default as they approach term), and so the coverage is dropping with every new loan but increasing as the more nature portfolio is cleaned and doesn't call of the Provision Fund. Due to the high level of recent lending, this seesaw has seen the coverage rate decrease.
I'm relaxed about the size (£10m) and strength of the Provision Fund in comparison to the balances covered and quality of portfolio, however I do recognise that the drop in coverage could be disconcerting. Part of me thinks we should not have been so overly prudent, and we are shooting ourselves in the foot from a Marketing brand perspective.
However it would be wrong to change this overly prudent coverage because it makes Marketing unhappy. And as the portfolio matures further, eventually the coverage will increase back, probably from Q3 2015 onwards.
Kevin.
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Post by GSV3MIaC on Jan 18, 2015 9:58:23 GMT
If your forecasting is accurate then anything >1.000 should be OK. If your forecasting is cr&p, then 10.0 might not be enough.!!
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Post by p2plender on Jan 18, 2015 10:59:55 GMT
We counting on you Kev, may the force be with you.
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