Bondora Rating results, according to Bondora

Even their own analyses don't agree with half of their claims

I liked most the comment in this post about "...returns in Finnish and Spanish loans have been continuously increasing and have caught up with Estonia by now", which was mentioned several times during the post.

www.bondora.com/blog/bondora-rating-profitable-since-inception/

Funny thing is that even though they now separated the loans into quarters and didn't include data about volumes, it is still pretty clear that return for majority of Ratings for ESP and FIN loans has been going down for those 2015 loans. This is exactly as it should be going with the crappy results in those countries and due to the way XIRR calculation has a few years' delay in showing you the bad news.

You simply need to look at the previous analyses, pick a Rating and compare that "actual" value with the Q1-Q4 2015 "actual" values for the corresponding country and Rating. In most cases for non-EST they're lower now than they were when the previous analysis was done. Exactly like I said they'd be.

www.bondora.com/blog/bondora-rating-has-outperformed-expectations-98-of-the-portfolio-above-target-return/

And that's essentially the only part of the analysis that makes sense to look at (comparing previous 2015 "actual" (Bondora's XIRR) values to those from before to see whether they've gone up or down). Even Slovakia has gathered up the pace and dropped from -1.5% in January to -4.09% by now. Still long way to go to actual result though.

I've already explained the idiocy of comparing Bondora's XIRR to their Expected Return in length in my old post here:

rahafoorum.ee/en/bondora-rating-has-outperformed-expectations/

P.S. I do realize that Bondora's latest post probably meant by growing return that return for 2016 loans is higher than 2015 Q1 etc. But that's just plain stupid. If fresher loans wouldn't have higher XIRR, then it would mean Bondora started using a more realistic XIRR calculation or the loans are monstrously worse than previously issued ones. I'm relatively confident they didn't change their calculation.

Some of my spanish old defaults suddenly went green the last days. New repayment plan without any paymant, but I sold all of them with high deiscounts of 50%+ before I noticed. Anyway, I'm happy to get rid of this grap.

When I have some time (not right now...) I will do some analysis on Bondora public data. For the moment I did it on my owns loans only (some 6-digit figure, I think it's relative representative in terms of statistic measurements).

Below is a comparison of expected and real loss, measured on EAD1


PRR = Percentage of real recovery           [ SUM(Recovery) / SUM(Coalesce(EAD1) ]
ERR = see below, Expected recovery rate
DAD = Days since default occured

PRR and DAD are weighted by EAD1 and is relative to SUM(EAD1) of the respective rating grade. The universe of loans are the defaulted ones (AD=1) after I bought or issued them. Loans are anything from 1 to 4 years old since buying them:

Rating PRR ERR DAD
53.1 185.3 413
A 8.0 70.2 164
B 3.4 23.9 205
C 9.2 58.4 226
D 12.4 63.3 282
E 8.6 32.6 382
F 4.8 15.6 444
HR 14.3 39.7 519

As Bondora does not state how long it takes to recover to reach their assumed loss or recovery rate, I assume something between 2 and 4 years (in Germany it can take up to 6 years, but it's unlikely anything is recoverd after 2~3 years). PRL goes down in my calculation by every cent of payments done after default. The age in days since default is the DAD column.

So analysis now...Assume recovery will take 4 years until the loan remainder is written off - which of course is a personal guess from my side - we calculate: Assume that recovery payments until end of a 4 year period match the recovery payments from default day until today -> So we scale the Real recovery rate (PRR) by the remainding time from dafault day t until t+1440 => The result is ERR, my "Expected Recovery Rate" which is in % of EAD1. I know it's a rough guess, but let's check the results.
For B e.g. we have 3.4% of real recovery with an expected recovery of rounded 25%. Default is on average here just 205 days old, so if recovery is the same for next 6/7 of total 4 years, the recovery increases by ~7 to 25%. So the expected loss in my calculation is 75%. For D it's ~65% recovery with ~35% loss expected.

This somehow matches the "Loss rate if default" on the primary market published or is even better, at least I would say that the LGD number seems not too bad. Unfortunately LGD and PD are not published on the investment list or loan data set any more (only in primary market), so it's currently not possible to calculate a proper comparison of target and actual loss and recovery rate.

The only issue is, that the above analysis is more a rough verification of the LGD parameter. The PD parameter however is at least as interesting as it has the same impact on what Bondora treats as "EL" - and the analysis still depends on the guessed time the recovery will take.

My gut feeling said before the analysis that "their" EL is far too low, however LGD seems to be okay, so I will take another approach to check the PD when I have some time on their full data set... Maybe the gut is not always as right as expected, but let's see later on ,-)

Regards,
Soeren


PS: If you want to recalc the numbers on your portfolio: I have a MySQL database table with all columns from the investement reports. Select first all defaulted loans then apply the following SQL (some extra colums and different colum names are here used):



SELECT Rating
, ROUND(SUM(EAD1), 2) AS EAD1
, ROUND(SUM(Recovery), 2) AS Recovery
, ROUND(SUM(Recovery) / SUM(EAD1) * 100, 1) AS PctRealRecovery
, ROUND(SUM(Recovery) / SUM(Coalesce(EAD1, PurchasePrice, InvestmentPrincipal)) * 100 * (1440 / (SUM(DATEDIFF(NOW(), Default_StartDate) * EAD1) / SUM(EAD1))), 1)  AS pct_Excpt_Recovery
, ROUND(SUM(DATEDIFF(NOW(), Default_StartDate) * EAD1) / SUM(EAD1)) AS DefaultAgeDays
 FROM tmp_defaults
GROUP BY Rating
ORDER BY Rating;


Hi soeren,

I did not exacty understand what you are calculating but here my values:

Rating EAD_1 RECOV PctRealRecovery pct_Excpt_Recovery DefaultAgeDays
    85,21 86,93 102 187,2 785
A 339,65 264,69 77,9 168 668
AA 8,51 11,97 140,7 306,9 660
B 915,46 268,97 29,4 84,9 499
C 3402,4 1153,33 33,9 118,9 411
D 6302,64 1791,31 28,4 111,6 367
E 3376,63 678,76 20,1 86,9 333
F 3732,87 980,67 26,3 81,7 463
HR 10655,3 1425,55 13,4 36,6 526

And one for year and country as well. Same source for all data.


For those who need help understanding this table, here's a helpful explanation from Bondora blog: "Returns in Estonia have been steady, whilst returns in Finnish and Spanish loans have been continuously increasing and have caught up with Estonia by now"

The HR loans are a disaster 90/95% doesn't pay back, most loans proportion are not equal to the return and the risk you take. since C rating it will be more risky

I share your frustration in all those posts. Bondora started very well but is now dying and is trying to come up with new products every day to find a solution. I also tried to contact their customer support recently and I got only one answer which was completely out of context. I am withdrawing as well from the direct loans. I still have some money in Go&Grow but I fear Bondora might be going down altogether. What do you think ?