|
Post by westonkevRS on Feb 27, 2015 19:52:31 GMT
You might have noticed an improvement in the coverage ratio from recent lows. This is due to a number of positive reasons including the continued high level of contributions to the Provision Fund from borrowers, defaults within our risk appetite thresholds (that always aim to provide an ongoing surplus to the fund for future growth) and improving the expected loss calculations to better recognise the security associated with some of our Commercial Lending loans.
Kevin.
|
|
|
Post by moneyball on Feb 28, 2015 20:59:02 GMT
You might have noticed an improvement in the coverage ratio from recent lows. This is due to a number of positive reasons including the continued high level of contributions to the Provision Fund from borrowers, defaults within our risk appetite thresholds (that always aim to provide an ongoing surplus to the fund for future growth) and improving the expected loss calculations to better recognise the security associated with some of our Commercial Lending loans. Kevin. This is something I noticed earlier this week. Although the provision fund has gone up at a slightly higher uptick (relative to new loans originated) the vast majority of the reason behind the increase of coverage ratio has been the near 12% decline in anticipated claims in just a week. Is this a reversal of the process that appeared to start in early November? (which lead to the coverage ratio starting to decrease.) Have a substantial number of outstanding loans got past the "danger zone" for defaulting?
|
|
|
Post by westonkevRS on Mar 1, 2015 7:08:32 GMT
You might have noticed an improvement in the coverage ratio from recent lows. This is due to a number of positive reasons including the continued high level of contributions to the Provision Fund from borrowers, defaults within our risk appetite thresholds (that always aim to provide an ongoing surplus to the fund for future growth) and improving the expected loss calculations to better recognise the security associated with some of our Commercial Lending loans. Kevin. This is something I noticed earlier this week. Although the provision fund has gone up at a slightly higher uptick (relative to new loans originated) the vast majority of the reason behind the increase of coverage ratio has been the near 12% decline in anticipated claims in just a week. Is this a reversal of the process that appeared to start in early November? (which lead to the coverage ratio starting to decrease.) Have a substantial number of outstanding loans got past the "danger zone" for defaulting? It's a mixture of all three reasons (bad debt actually nit occurred, Provision Fund increasing, better recognition of security). I would say the last has had the most impact, i.e. our expected losses are lower because the algorithm is better at recognising the actual losses that (won't) occur with security. Either way, both the coverage of total Provision Fund to expected losses, and as a percentage of balances under management are the highest in the P2P industry. Anyone care to compare the metrics westonkevRS
|
|
|
Post by rudry2677 on Mar 1, 2015 15:03:52 GMT
This is something I noticed earlier this week. Although the provision fund has gone up at a slightly higher uptick (relative to new loans originated) the vast majority of the reason behind the increase of coverage ratio has been the near 12% decline in anticipated claims in just a week. Is this a reversal of the process that appeared to start in early November? (which lead to the coverage ratio starting to decrease.) Have a substantial number of outstanding loans got past the "danger zone" for defaulting? It's a mixture of all three reasons (bad debt actually nit occurred, Provision Fund increasing, better recognition of security). I would say the last has had the most impact, i.e. our expected losses are lower because the algorithm is better at recognising the actual losses that (won't) occur with security. Either way, both the coverage of total Provision Fund to expected losses, and as a percentage of balances under management are the highest in the P2P industry. Anyone care to compare the metrics westonkevRSDuring the past three years or so my allegiance has gone from ZOPA to RS but the above comments brought to mind 'Pride goeth before destruction, and a haughty spirit before a fall'.
|
|
|
Post by westonkevRS on Nov 25, 2015 17:45:00 GMT
The coverage ratio has today dropped to 151%. The coverage ratio calculated real-time, but some of the variables are changed monthly by myself.
Today's change is a result of me altering some of the input variables used in the expected loss estimates across some portfolio segments, that I think if I'm to be prudent needed higher estimates of potential losses. This is an ongoing monthly process. Not always, but this can cause us to change Provision Fund charges to specific segments, i.e. pulling some of the levers we have available to continue to re-build the Provision Fund and the coverage ratio. This is always our aim.
Not big news really as this is an ongoing process, but thought I'd raise in case of alarm at the sudden drop.
Kevin.
|
|
jlend
Member of DD Central
Posts: 1,817
Likes: 1,444
|
Post by jlend on Nov 26, 2015 22:32:48 GMT
The coverage ratio has today dropped to 151%. The coverage ratio calculated real-time, but some of the variables are changed monthly by myself. Today's change is a result of me altering some of the input variables used in the expected loss estimates across some portfolio segments, that I think if I'm to be prudent needed higher estimates of potential losses. This is an ongoing monthly process. Not always, but this can cause us to change Provision Fund charges to specific segments, i.e. pulling some of the levers we have available to continue to re-build the Provision Fund and the coverage ratio. This is always our aim. Not big news really as this is an ongoing process, but thought I'd raise in case of alarm at the sudden drop. Kevin. You mention continue to rebuild the provision fund and coverage ratio. Do you have and specific target in mind ? I assume this was just a general comment
|
|
|
Post by westonkevRS on Nov 27, 2015 18:31:46 GMT
Yes, just general. There is no defined target for size, coverage or leverage. The consensus across the company is that this needs to grow, after all the companies reputation and viability depends 100% on it. Although at some size there could come that point where the Finance bods want a larger share of the spread. But for now we are all of the same mind.
Kevin.
|
|
|
Post by westonkevRS on Nov 30, 2015 9:34:39 GMT
Sometimes we get direct questions from lenders who are concerned, in the spirit of fairness I'm happy to post the questions and answers here:
Over the last month the coverage ratio continues to drop and the total sum within the provision fund has remained static. It appears that the RateSetter model is not working and is heading for a situation where not all claims can be met by the fund.
RateSetter do not believe that we are “heading for a situation where not all claims can be met by the fund” is a little premature to say the least. The absolute value of the Provision Fund has consistently grown every month for the last 5 years, without exception. It is true that the ratio to outstanding balances has decreased, and although isn’t ideal is not a concern. It is twice the ratio that it was 2 years ago in 2013, so although the last 6 months has not grown, over the longer term performance remains strong. £16m gives RateSetter quite a buffer to identify economic trends and react accordingly, we have many levers that can be pulled to grow the fund again. This includes changing the pricing of loans, the share between RateSetter as a business and the Provision Fund, and whether to take fees up-front or over the lifetime.
There will be times in the economic ebb and flow where the Provision Fund decreases in absolute size and ratio – if you are not prepared for this almost certain eventuality you should NOT lend with RateSetter.
Can you tell me when the decision to add borrowers fees to the fund over the course of a loan instead of up front was taken and why investors were not informed, and what action has and is being taken to correct this situation so that the fund will begin to increase again?
Borrower fees are determined by RateSetter and the amount, type and up-front vs lifetime strategy is not typically communicated to lenders. Fees are commercially sensitive and so RateSetter does not publicly communicate changes to fees. In reality the fee structure of RateSetter loans changes dramatically across type, e.g. Commercial, Consumer or Real Estate, but also by source in terms of comparison web site, direct or via a broker. We believe that changing the fee structure in this way (from up-front to lifetime) makes us more resilient as a platform. If the only source of income available to us came through writing new loans then we could potentially be forced to continue to write new loans (to keep money coming in), even in adverse credit conditions. Charging fees over the lifetime of the loan results in a short-term hit to the Provision Fund, but ultimately makes us far stronger, as we’ll be under much less pressure to keep writing new loans if we feel that credit conditions have worsened.
RateSetter is in the Finance industry, but it is also in the Trust industry. If you do not trust RateSetter to manage your investments or feel uncomfortable with the level of risk you should not lend through RateSetter. In fact you should probably not lend through P2P platforms at all. RateSetter cannot provide you with a guarantee or security, it is low risk but certainly not no risk.
Is it RateSetter’s intention to increase the fund or allow it to run down?
There is no defined target for size, coverage or leverage. The consensus across the company is that this needs to grow, after all the companies reputation and viability depends 100% on it. No individual investor has ever lost a penny using RateSetter - while this is not a guarantee for the future, it is a track record that we are proud of and are highly incentivised to maintain. However, it’s important to recognise that peer-to-peer lending does involve risk.
If you are at all concerned with the higher risk nature of P2P lending with RateSetter and are at all concerned or stressed, then we might argue you have miss-judged your personal risk appetite. RateSetter does not want to lend for individuals that are at all uncomfortable with using RateSetter within a diversified investor strategy. Low risk, but not no risk.
Kevin.
|
|
jlend
Member of DD Central
Posts: 1,817
Likes: 1,444
|
Post by jlend on Nov 30, 2015 10:29:51 GMT
There was a mention of fees above. I see on the FAQs on the website there is a bit on fees for commercial loans.
'We charge a set-up fee of between 0.5% and 1.0%, which is added to the loan. We charge a Provision Fund fee, known as either the Credit Factor Fee, which is taken up front, or Credit Rate Fee, which is taken over the term, of between 1.0% and 4.0%. We charge a margin of between 2.5% and 3.5% over the rate we pay to our lenders.'
Does the same range broadly apply to personal loans ?
|
|
|
Post by westonkevRS on Nov 30, 2015 12:26:34 GMT
No, personal loans are priced very differently (and typically lower margins, as bad rates are lower and competition greater). Personal loans are tailored by source, there really is no one-size fits all.
|
|
|
Post by lb on Dec 9, 2015 9:54:15 GMT
The coverage ratio has today dropped to 151%. The coverage ratio calculated real-time, but some of the variables are changed monthly by myself. Today's change is a result of me altering some of the input variables used in the expected loss estimates across some portfolio segments, that I think if I'm to be prudent needed higher estimates of potential losses. This is an ongoing monthly process. Not always, but this can cause us to change Provision Fund charges to specific segments, i.e. pulling some of the levers we have available to continue to re-build the Provision Fund and the coverage ratio. This is always our aim. Not big news really as this is an ongoing process, but thought I'd raise in case of alarm at the sudden drop. Kevin. the coverage ratio on the site today is 139%. So has it dropped a further 12% in 2 weeks? Can you provide any explanation as it seems like quite a dramatic fall in the last month from over 160% to below 140%?
|
|
ashtondav
Member of DD Central
Posts: 1,805
Likes: 1,087
|
Post by ashtondav on Dec 9, 2015 10:41:31 GMT
Surely its more defaults. you would expect the coverage to vary ENORMOUSLY depending on defaults which won't be even but will be skewed by some very large loan defaults one month and very small the next.
|
|
|
Post by westonkevRS on Dec 9, 2015 19:53:44 GMT
I'm always iteratively changing the expected losses for the future, based on historical performance. I've increased my expectation of future losses, so basically of the £16m in the Provision Fund I've increased the potential amount it'll have to pay-out in a run-down mode. These future bad debts may never materialise, or indeed they could be worse. That's the nature of the future....
That said, we are going to be more transparent in the New Year about the impaired/altered loans owned by the Provision Fund and generating an income (which isn't reported). And also more detail into the current pricing of loans that is based on future income. Both result in short term pain for long term gain. These should provide more data. I don't want to get into an on-line debate about specific movements of the coverage or Provision Fund.
Kevin.
|
|
|
Post by woodbury on Dec 9, 2015 20:32:49 GMT
I've completely bailed out my £70k out of the monthly market a couple of hours ago having seen the coverage ratio dip to 139%. I had set myself a minimum of 150% coverage since joining RS about 9 months ago, and the sudden drop over the past week was more that a little worrying. I suggest that if you could communicate underlying changes in bad debt assumptions on RS it would be helpful - to distinguish from actually losses incurred affecting the coverage ratio. This would help lenders understand that your ratio reflects a more prudent assumption.
I am a newbie to this board, but did notice on another thread that you did not think it was likely that there would ever be a situation where there was not enough liquidity in the monthly market. If you don't explain the significant fall in the coverage ratio more effectively, I suspect that the likelihood of this event might be higher than you think.
|
|
jlend
Member of DD Central
Posts: 1,817
Likes: 1,444
|
Post by jlend on Dec 9, 2015 21:44:22 GMT
I'm always iteratively changing the expected losses for the future, based on historical performance. I've increased my expectation of future losses, so basically of the £16m in the Provision Fund I've increased the potential amount it'll have to pay-out in a run-down mode. These future bad debts may never materialise, or indeed they could be worse. That's the nature of the future.... That said, we are going to be more transparent in the New Year about the impaired/altered loans owned by the Provision Fund and generating an income (which isn't reported). And also more detail into the current pricing of loans that is based on future income. Both result in short term pain for long term gain. These should provide more data. I don't want to get into an on-line debate about specific movements of the coverage or Provision Fund. Kevin. It is good to hear that there will be more transparency on the assets and workings of the provision fund now it has reached such a significant size. It is important to continue to increase the strength of the fund while the economy remains relatively strong. Who knows but the next couple of years may be more challenging generally for the economy and bad debt generally. I am sure sure this remains a high priority for ratesetter.
|
|