|
|
Post by pachiraaquatica on Sept 5, 2019 7:38:10 GMT
I've just seen this quote from Jordan Bintcliffe given on 5th July 2019.
“Currently, we manage the provision fund to an interest coverage ratio in excess of 100 per cent of expected losses in order to provide for unexpected losses – in other words, we provide for stressed scenarios via the excess,” RateSetter founder and chief executive Rhydian Lewis (pictured) told Peer2Peer Finance News via email.
“I have been wanting for some time to look at an alternative way of doing this which is to provide for stresses through the expected losses figure instead and therefore we are planning to introduce stress testing to the provisioning over the next financial year.”Does this mean they are just going to test that their current scenarios work. Or does this mean that they might wish to reduce the provision fund if their stress testing deems it more than is needed? The original article is here www.p2pfinancenews.co.uk/2019/08/13/ratesetter-to-introduce-stress-testing-to-provision-fund/ |
|
|
|
Post by Deleted on Sept 7, 2019 7:07:24 GMT
Surely, he means the latter?
The driving factor, I assume, is to hit exactly, or as near to 100% coverage in order to have an effective provision fund but at the same time release up dormant capital for use elsewhere (or maybe as operating profit - who knows, its their business after all).
I cannot see how the provision fund can be “actively stress tested” to see if it works. Surely, this is done by computer modelling?
Although, I dare say they could pull a substantial sum from the fund to a temporary reserve and watch what happens as loans default. And then put the money back, if the provision fund is failing to meet need. If they find a dynamic process that works then it is possible they could invest (at a low percentage - but every penny counts) in a banking product with ready access. But I assume that they already do this?
Or maybe, the intention is to drive the provision fund to below 100% - to put the money into an interest bearing fund with non-instant access and pass the delay in repayments on to the customer in some way by paying back defaulting loans considerably later than the date they would otherwise. Will the customer even notice? Have you noticed how the settlement process on Monday is now taking an entire business day to complete - I.e. you get your money one day late. Is this just a foul-up, or have they been actively “stress testing”. I.e. holding large amounts of money an extra day and seeing if they can get away with it? Maybe I am being too suspicious, or conjecturing too far? (again, its their business, apparently overseen by the FCA).
Anyway, they have announced that they are going to make the current product set and methods legacy and replace them with a new product set. For better “liquidity”.
Whatever is going on, I do not think he is signalling anything to the everyday investor in Ratesetter products - he is signalling more to other interested financial parties.
That’s my take. I could be totally wrong, of course.
|
|
|
|
Post by propman on Sept 9, 2019 10:47:43 GMT
This is a neutral statement which can be read with cynicism as a precursor to actions that would not be in our best interests.
I am sure that they have previously been "stress testing" as otherwise I am very worried at the management of their business! I read this as a precursor of them increasing the expected bad debts while lowering the target coverage ratio. If this means that they believe that the provision needs extra money, I would expect that they would achieve this by allocating less of the borrowers payments to the fund than at present. They would choose how this is distributed between the upfront contribution and the ongoing contribution depending on the liquidity of the fund. It remains to be seen whether tyhey will allow the reduction to reduce overall payments (APR) to make the loans more competitive and therefore to increase lending, or increase their fees and profit. I suspect the former would only be their option if they thought the extra loans would generate higher fees overall.
A cynic might suggest that they have finally woken up to weakening economic prospects and have been using historical defaults for their estimates despite the understatements that this has been producing. As such the lowering in the ratios might actually be from making the appropriate estimates in today's uncertain times rather than making excess provisions to cover possible future unexpected deteriorations.
We will no doubt find out in RS's timescale!
|
|
