Neil_P2PBlog
P2P Blogger
Use @p2pblog to tag me :-)
Posts: 355 
Likes: 209
|
Post by Neil_P2PBlog on Mar 16, 2017 20:05:05 GMT
I've been tracking the provision fund coverage ratio from www.ratesetter.com/invest/everyday-account/protection 4 times a day for the last 6 months. The coverage ratio is calculated by dividing the size of the Provision Fund by Expected Losses. RateSetter’s target range (as given on their site) for the Coverage Ratio is between 125% and 150%. This is the result:  An interactive data visualisation (with hover-over tool tips etc) is on my blog here: RateSetter Provision Fund Coverage Ratio |
|
|
|
Post by beniamino on Mar 16, 2017 23:20:57 GMT
Thanks Neil! This is very helpful for me. It looks like the decline has been around 1% per month since November, not the 3% I estimated in another thread.
|
|
mark123
Member of DD Central
Posts: 111
Likes: 120
|
Post by mark123 on Mar 19, 2017 19:35:46 GMT
Great data presentation. Thanks Neil.
Does anybody know the reason for the plummet from 129% to 120% on 31 Oct 2016?
Looks like half the 6 month drop happened on one day. One large bad debt? Correction of calculation error? Re-assessment of expected debts? Other?
Regards, Mark
|
|
jonah
Member of DD Central
Posts: 2,031
Likes: 1,113
|
Post by jonah on Mar 19, 2017 20:50:32 GMT
Great data presentation. Thanks Neil. Does anybody know the reason for the plummet from 129% to 120% on 31 Oct 2016? Looks like half the 6 month drop happened on one day. One large bad debt? Correction of calculation error? Re-assessment of expected debts? Other? Regards, Mark I agree a great graph. It was on my to do list, but you have covered it beautifully.  As for the drop, I suspect the 500k loan from the company was paid back that day. IIRC there were two loans from RS to the PF which have now been repaid.
|
|
jlend
Member of DD Central
Posts: 1,817
Likes: 1,444
|
Post by jlend on Mar 20, 2017 8:09:27 GMT
Great data presentation. Thanks Neil. Does anybody know the reason for the plummet from 129% to 120% on 31 Oct 2016? Looks like half the 6 month drop happened on one day. One large bad debt? Correction of calculation error? Re-assessment of expected debts? Other? Regards, Mark I agree a great graph. It was on my to do list, but you have covered it beautifully. As for the drop, I suspect the 500k loan from the company was paid back that day. IIRC there were two loans from RS to the PF which have now been repaid. I asked the question when it happened "The provision fund coverage ratio has suddenly dropped from 131% to 120% and is now below the target ratio for the first time (125% to 150%). Can you give some insight into this?""Hi JLend – the Coverage Ratio has decreased due to an increase in Expected Losses (EL). We regularly update EL using actual performance observed from loans we have written in the past – we take a cohort of loans written between 12 and 18 months ago and analyse their performance, which is used as a basis for calculating an EL rate which is applied to all active loans.
Therefore, this EL update reflects loans written in 2014 which performed worse than expected. Since 2014, we tightened our lending criteria and it would be reasonable to expect that will translate to improvements in performance. However, we apply a principle of caution and do not build in these potential improvements until we see them confirmed into actuals.
We remain committed to meeting the target 125-150% Coverage Ratio and adjust our underwriting and pricing to help us achieve this."They have also said: "We are committed to bringing the Provision Fund Coverage Ratio back within the target range in 2017" in an answer to another question on their blog so it will be interesting to see how this progresses.
|
|
|
|
Post by Deleted on Mar 21, 2017 16:28:56 GMT
Ratesetter's answer doesn't seem to be unreasonable as to why the Provision Fund has decreased. What are others' thoughts?
|
|
jlend
Member of DD Central
Posts: 1,817
Likes: 1,444
|
Post by jlend on Mar 21, 2017 18:43:57 GMT
Ratesetter's answer doesn't seem to be unreasonable as to why the Provision Fund has decreased. What are others' thoughts? Ratesetter may well have known this earlier and could have made an adjustment earlier. As westonkev noted in a post, the actual loans written in 2014 included a cohort with a higher risk profile than ratesetter originally profiled at the start of 2014. The other thing worth mentioning is that the 2015 loans are also tracking with a higher default rate albeit not as high as the 2014 loans. I have my doubts about if ratesetter can get back within the target range this year but I'd love to be proved wrong. It is worth remembering though that ratesetter have a great track record although this doesn't guarantee the future. I think liquidity risk would hit before any provision fund issue, although I may be wrong again.
|
|
|
|
Post by WestonKevTMP on Mar 28, 2017 19:48:06 GMT
It is worth remembering though that ratesetter have a great track record although this doesn't guarantee the future. Why thank you, I think I did a good job! Although I'm not there now obviously, and RateSetter is a bigger beast now lending consumer (my expertise) but also SME and property. These are chunkier and so a certain amount of statistical luck comes into play. I think liquidity risk would hit before any provision fund issue, although I may be wrong again. Liquidity is a big risk to P2P platforms. There might not be able to have a " run on the bank" as people are tied in. However if new lenders are not forthcoming they can't match new loans and will not be able to charge the up-front fees that allow them to cover operational costs. Having said that, the platforms that have switched to loans under management fees will survive for much longer, and that includes RateSetter. Their income is not dependent on writing new loans (for a short-medium period at least), and so is quite robust from liquidity risk. Other platforms less so.
|
|
dorset
Member of DD Central
Posts: 281
Likes: 187
|
Post by dorset on Mar 29, 2017 17:41:35 GMT
Not sure what you mean by “tied in” or am I missing something. In the rolling market lenders loans mature after 30 days and can be withdrawn. The funds are however being lent out on property and other medium term borrowing.
Two years into Brexit the property market takes a serious dip, bad debts increase, the provision fund drops toward 100%, new money dries up and lenders panic and start to exit the rolling market as loans mature. Will RS try to block withdrawals on maturing loans?
RS are presumably paying out 3% to lenders on the rolling market and charging 10% to property borrowers. If you want to lend on property why not do so on another platform and get the 10% for yourself. You can at least assess the risk yourself. The PF could just be a chimera in such a scenario.
|
|
|
|
Post by trentenders on Mar 29, 2017 18:19:37 GMT
From Ratesetter's site:
'What happens if there are insufficient funds to finance existing loan contracts
If a situation occurred where there are insufficient funds on the market to finance existing loans, the Lender would be 'locked-in' to the contract until the Borrower had repaid their loan.
This situation has never occurred before, nor do we envisage it happening in the future, but we feel it is necessary to clarify the procedure should this scenario arise.
If your loan contract is locked in for a longer term, the entire contract rate would be at the rate of the original contract. So if you had a 1 month loan at 3.5% which was locked in for 12 months, the entire contract rate would remain at 3.5%. '
|
|
dorset
Member of DD Central
Posts: 281
Likes: 187
|
Post by dorset on Mar 29, 2017 20:45:35 GMT
Wow thanks for that info. Presumably then your monthly rollover could be locked into a five year loan at 3% plus RS then skim off a percentage that they decide on to top up the PF. Have been in RS almost from the beginning with a high point of £30k and now run down to about £8k. Risk and return dynamics just don't stack up anymore, sorry RS.
|
|
|
|
Post by beniamino on Apr 13, 2017 8:37:05 GMT
The coverage ratio has recovered to 119% this week, so there is no longer a clear downward trend.
|
|
jlend
Member of DD Central
Posts: 1,817
Likes: 1,444
|
Post by jlend on Apr 13, 2017 14:58:26 GMT
The coverage ratio has recovered to 119% this week, so there is no longer a clear downward trend. It is welcome but I'd be careful about reading too much at this early stage about whether the trend will continue. The coverage ratio is still outside the target range of 125 to 150 percent. It could drop down again given the potential challenges with the general economy. I am a fan of ratesetter and the track record of the provision fund to date.
|
|
wapping35
Member of DD Central
Posts: 385
Likes: 210
|
Post by wapping35 on May 6, 2017 12:06:32 GMT
I note v recently RS has updated and corrected the Statistics pages: members.ratesetter.com/ratesetter_info/lending_performance.aspxOf most interest for me were the line items: Latest Projected Lifetime Loss rate: 3.17% And Projected Provision Fund usage: 92.80% (using that 3.17% number). That is the PF has a surplus of 7.2%. (£4.1m). The coverage ratio they headline (which generates the 123% coverage ratio) uses the "Expected Lifetime Loss Rate" of 2.84% which reflects the expected default rate when the loans were written versus the 3.17% which reflects the expected default rate currently based on performance to date. The 3.17% & 92.80% moves (as you would expected) with actual defaults /recoveries and new loans written ,on a daily basis. For me at least the new statistics are a huge improvement in consistency and clarity from RS. And I have fed this back to RS directly.  |
|
