r00lish67
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Post by r00lish67 on May 6, 2019 10:55:42 GMT
Sounds like RS is not so keen on an external audit anymore. This does not really surprise me. I know the Banks are not too keen on external independent audits either (and indeed the audits of all company DB pension fund future assets and future liabilities). But auditors could clearly do the job. i.e. Quote from Oct 2018: In the future, we also plan to have independent annual audits of the future contracted income and future expected losses." May 5th 2019: We are considering the potential for projections to be externally analysed in future. Planning to do something versus considering to do something.... <snip> As in my post above though, why are we actually so concerned about this ratio? What they're presenting to us as the most important statistic consists in the majority of their projected future income divided by their projected future losses. The cash element makes up about 1/3 of the current PF, so 2/3 of the positive element is their educated guesswork and the entirety of the negative element is their guesswork. As a result, the number is very sensitive to changes in projections, and true trends can theoretically be hidden by those changes. If we instead simply take their PF cash and measure it against the loans under management, that IMV is a consistent, tangible, irrefutable measure that can't be polluted by tweaks to expected future contributions or losses. In short, it takes out the guesswork. edit: I don't suppose anyone has old RS statistics for PF cash vs capital value of loans under management do they? I would be v.interested to see that trend.
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Post by Deleted on May 6, 2019 10:56:30 GMT
This does not really surprise me. I know the Banks are not too keen on external independent audits either (and indeed the audits of all company DB pension fund future assets and future liabilities). But auditors could clearly do the job. I would have thought that an actuary would be needed to verify future projections just as it is actuaries who calculate the value of DB liabilities in pension schemes (for funding and company accounts).
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Post by Deleted on May 6, 2019 11:02:08 GMT
If we instead simply take their PF cash and measure it against the loans under management, that IMV is a consistent, tangible, irrefutable measure that can't be polluted by tweaks to expected future contributions or losses. In short, it takes out the guesswork. I think the future losses do matter. Imagine that RS decided to lend to lots of uncreditworthy people to grow the business. Your statistic would remain unchanged (vs lending to creditworthy people) but the actual risk would be much higher because the PF will pay out more in the future. I'm not sure what the solution is though!
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r00lish67
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Post by r00lish67 on May 6, 2019 11:07:40 GMT
If we instead simply take their PF cash and measure it against the loans under management, that IMV is a consistent, tangible, irrefutable measure that can't be polluted by tweaks to expected future contributions or losses. In short, it takes out the guesswork. I think the future losses do matter. Imagine that RS decided to lend to lots of uncreditworthy people to grow the business. Your statistic would remain unchanged but the actual risk would be much higher because the PF will pay out more in the future. I'm not sure what the solution is though! I'm not quite saying that they don't matter, but what I am saying is that those numbers are highly sensitive to changes in projections. As an investor I try to find the simplest measures that are least susceptible to tinkering. When ratios are produced based upon projections, especially unaudited ones, that raises the threat of such tinkering to our (possible) detriment. Also, in your scenario, my statistic would remain unchanged until the losses from the uncreditworthy people start to filter through. The fact that we're seeing actual PF cash decrease now in real life is testament to those losses currently exceeding the gains from their PF contributions. That to me is more important than expected future gains / expected future losses (but, again, both have their uses). Edit: As a side note, Lending Works produce their key statistic (the BDCR) in a fashion much closer to the metric I measure against. They take their current PF cash + future inflows and divide it by the total loans under management. This at least removes the ambiguity around 'future outflows' from the statistic, but is still susceptible to changes in future inflows of course.
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alanh
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Post by alanh on May 6, 2019 11:59:53 GMT
I've been monitoring the ratio of cash/loans under management since last June on more or less a weekly basis. The number is surprisingly stable and has stayed within a range of 1.60% - 1.70% over that entire period. Obviously the exception to that is the most recent reading that we have where its suddenly dropped down to 1.54% since the last (now monthly) datapoint. Given how stable this ratio has been I am inclined to assume that its down to a one off event of some sort, but its difficult to tell when you only have headline data.
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jlend
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Post by jlend on May 6, 2019 21:40:09 GMT
I have a possibly stupid question (I may be misinterpreting something). Expected Future provision fund inflows are currently £25.6m Expected Future losses are £34.6m. Does that not imply that the PF actual cash is going to continue to decrease on their own projections? I note it did decrease by £1m in the last month, despite the loan base increasing by £11m. Regardless of whether I've misunderstood something in the above, I remain concerned about RS. The simple fact is that in terms of PF cash they actually hold in their hands, that number went down significantly last month (-7%) whilst the capital amount of loans it has to cover increased by 1.3%. Rather than the 112% figure, which is derived largely using future projections (easily tweakable when the results aren't liked), I prefer to simply divide PF cash by loans under management. That ratio has gone down from 1.67% to 1.54% in a single month. Unfortunately I don't have the stats for further back, but I'm willing to bet it was wayyy higher. In answer to your question. Yes over time the cash balance would continue to fall..... if no new loans were written based on the RS projections. Unsecured Personal loans tend to default early, secured property loans later so I doubt we would see a smooth fall. The flip side is that the PF would need to cover a smaller value of loans over time. ... it would be good if the next RS blog gave an explanation of why the PF cash balance fell. For example this may have been a planned event if RS are taking even less of the PF contributions up front. It may have been a one off big loan issue, a particular cohort of loans, a lot of late monthly payments they expect to get sorted etc.
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Post by propman on May 7, 2019 15:17:53 GMT
During most of 2018 there was an increase in the proportion of PF funding paid over the life of the loans. As a result, the cash stayed relatively constant despite a growing loanbook and increased expected defaults. I am also concerned that in addition to the recent reduction in liquidity in the PF, there has been a reduction in the proportion of future PF income as a proportion of the whole, hence the significant reduction in the PF Coverage Ratio. For much of 2018 the 2018 future PF income was close to the expected defaults from this cohort. Then late in the year (for the 3rd year running) expected defaults increased late in the year. Of course we cannot distinguish between early repayments exceeding expectations and reduced future income from more recently written loans.
- PM
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Post by gravitykillz on Jun 3, 2019 21:10:24 GMT
Has rs got a stronger pf than assetz 30 day qaa? I am presuming not because the majority of rs loans are unsecured whereas assetz loans are mostly backed with property. But I could be wrong.
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mark123
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Post by mark123 on Jun 9, 2019 9:40:13 GMT
I don't suppose anyone has old RS statistics for PF cash vs capital value of loans under management do they? I would be v.interested to see that trend. Hi, there are old stats in my post of Jan 17... "The downward trend on the provision fund continues. It is further below the RS coverage target of 125% to 150%. | Date | 26 Oct 2015 | 21 Sep 2016 | 1 Nov 2016 | 28 Jan 17 | | Provision fund contributions | £16m | £17m | £16m | £15m | | Contractual future income | Nil | £6m | £6m | £7m | | Expected bad debts | £10m | £18m | £18m | £19m | | Coverage "contributions" | 160% | 100% | 90% | 80% | | Coverage total | 160% | 130% | 120% | 116% |
I have changed my previous wording "provision fund cash" to RS terminology "provision fund contributions". I wonder exactly what this term means and whether this amount is sitting somewhere fully available for use as and when it is needed? Good luck, Mark"
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benaj
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Post by benaj on Jun 24, 2019 22:10:15 GMT
June figure is out.
Interest coverage ratio is back to 117%
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r00lish67
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Post by r00lish67 on Jun 24, 2019 22:20:22 GMT
June figure is out. Interest coverage ratio is back to 117% and PF cash is down another £200k whilst the amount it's protecting is up by £20m. Let's enjoy the high rates but be under no illusion, the risk is higher than before, not lower.
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elliotn
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Post by elliotn on May 4, 2020 10:17:47 GMT
I have tried to work out the implications of an interest cut, should that ever occur.
On the statistics page they have £854m under management. Lets say they implement a cut of 1 percentage point in investor interest across the board, then this means there is an annual inflow into the provision fund of £8.54m, or £711k per month.
This £711k per month inflow in turn increases the coverage ratio by 2.05 percentage points per month, all else being equal. So in rough terms a 1% cut in investor interest would lead to the coverage ratio going from 112% to 124.3% after 6 months or 136.6% after one year. this to me does not sound like a total calamity.
Admittedly these improvements would probably be being implemented against a background of generally deteriorating fundamentals so the coverage ratio improvements are unlikely to be as impressive as calculated above but I think it does go to show that ratesetter do have quite a lot of ammo available to correct this situation should the need arise without having too much of a detrimental effect on investors. Have you worked out the implications yet?
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