Alternative LendingWorks graphs

Thanks. The source is the Lendingworks stats page (risk return tab)

The red 2016-18 bars are taken from the provision fund. Any projected recovery from insurance should be included in LendingWorks' forecast bad debt rate. In some cases, the forecast bad debt rate is actually lower than the actual bad debt rate (e.g. 2015), which might reflect LW waiting for an insurance claim to pay out (or not, guesswork in this case).

As far as I'm aware, all borrower defaults are claimed against the PF (although I believe there are some non-PF protected loans, but not sure if these apply to us in any way). In any case, it doesn't technically come directly off their bottom line. It's just indicative that from 2016 onwards, it seems pretty clear that the loans LW have written have been a substantially loss-making business.

The above said, there is plenty of room for error in my analysis. There may be high loan arrangement fees that add to LW's income for example. Equally though, there's the rather substantial matter of all of LW's running costs -  Rent, staff, utilities, IT, marketing etc etc. I struggle to imagine any additional income not listed exceeding the unstated costs, but I'm sure LW's Matthew will correct me if I'm wrong.

Thanks for your analysis r00lish67 - if you keep that up we'll have to offer you a job...

One immediate thing that jumps out is that you're not comparing apples with apples. The lender yields you've included are annualised, as are the APRs. However, the loss rates used are lifetime rather than annualised. For longer loan terms the annualised loss rate is substantially lower e.g. 5% lifetime loss rate on a 48 month term equates very roughly to around 2.5% annualised. So your red bars are going to be approx. double what they should be. 

Any remaining gap between APR and the red bar then represents:

1. LW spread - both in the form of upfront fees and share of NIM; and
2. Any surplus or deficit funding in the Shield i.e. contributions not used/overused.

It's actually a useful piece of analysis as the FCA's P2P PS requires more disclosure around platform revenues versus lender returns (to ensure investors are aware of cases where the platform is charging 50% but only paying lenders 5%). This sort of graphical representation could be an interesting way of doing this. Interested to hear your thoughts.

Thanks

Hi Matthew, good point on my error, I will amend my original post.

Re: graphs, I think it'd be a great idea to use something like this for lenders, except more accurate and complete of course!

Other things that might be useful that weren't in the previous set of graphs on LW's page (off the top of my head).

1) Net shield utilisation forecast e.g. something showing that LW are expecting PF cash to fall/rise to not unduly concern lenders who don't have that forward view.
2) The impact of the insurance aspect of the products. I think lenders should be given a fair view of the impact of insurance, as it seems a common misconception that LW's insurance will cover most/all PF losses.
3) Some breakdown of how contractual future income and forecast future losses are generated perhaps.

This said, LW already seem to disclose far more than most lenders in terms of statistics, certainly compared to FC/RS. Hopefully that means the FCA's disclosure requirements will fall more lightly on you than other platforms.

Oh, and a job would be lovely, providing I can work a 10 hour week entirely from my home in my dressing gown