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Post by RateSetter on Jul 23, 2019 14:10:09 GMT
Good afternoon.
Today we have published the monthly update of portfolio statistics and also the quarterly review of the projections that underpin the Coverage Ratios. We've published a RateSetter Notice, which is copied below for reference.
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mark123
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Post by mark123 on Jul 23, 2019 19:58:12 GMT
Good to see the coverage ratio moving closer to its target range.
I will transfer another chunk of ISA funds into RS.
M.
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r00lish67
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Post by r00lish67 on Jul 24, 2019 9:41:39 GMT
Good to see the coverage ratio moving closer to its target range. I will transfer another chunk of ISA funds into RS. M. Apologies I'm on a bit of a run this morning, but in my view the ICR is quite misleading. In the last 3 months, RS have trumpeted the ICR moving from (I think) 112% to the heady heights of 121%. But let me express their same numbers a different way: The amount of actual cash they had in the PF as a proportion of loans under management in March 2019 was 1.67%. In July, that figure is 1.43%. So, in terms of cash at the bank, there is 15% less coverage than a few months ago. To put numbers on that, we had £14.1m protecting £837m before and now we have £12.7m protecting £888m. Is that a good thing? I think we have to ask ourselves why RS prefer calculating their headline stat as " (PF cash + PF inflows) / PF outflows". Why not use "(PF cash + PF inflows - PF outflows) / Loans under management" ? Or, even better, just remove the highly uncertain aspects and talk about what is now: "PF cash / loans under management"? Another useful stat about where they see the PF headed would be just "PF inflows - PF outflows" (currently minus £5.8m btw). What their ICR statistic does very handily is be extremely sensitive to tweaks up and down to their expected future losses and inflows, which just happen to be the numbers which are subjective and under RS's remit to tweak as they see fit. Meanwhile, the 'real' figures of PF cash and loans under management are dwarfed or indeed omitted entirely from their headline. Don't get me wrong, I do still invest with RS, but in my view their loanbook performance is steadily declining, not improving. Would be very interested in views to the contrary (on the basis of the actual statistics). Edit: If you think I'm being a stats conspiracy nut, just look again at what is written in black and white on RS's ICR box and think of the Micawber principle: Expected future inflows: £27,248,802 Expected future losses =£33,046,256 "Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery"
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djay
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Post by djay on Jul 24, 2019 10:57:19 GMT
Good to see the coverage ratio moving closer to its target range. I will transfer another chunk of ISA funds into RS. M. Apologies I'm on a bit of a run this morning, but in my view the ICR is quite misleading. In the last 3 months, RS have trumpeted the ICR moving from (I think) 112% to the heady heights of 121%. But let me express their same numbers a different way: The amount of actual cash they had in the PF as a proportion of loans under management in March 2019 was 1.67%. In July, that figure is 1.43%. So, in terms of cash at the bank, there is 15% less coverage than a few months ago. To put numbers on that, we had £14.1m protecting £837m before and now we have £12.7m protecting £888m. Is that a good thing? I think we have to ask ourselves why RS prefer calculating their headline stat as " (PF cash + PF inflows) / PF outflows". Why not use "(PF cash + PF inflows - PF outflows) / Loans under management" ? Or, even better, just remove the highly uncertain aspects and talk about what is now: "PF cash / loans under management"? Another useful stat about where they see the PF headed would be just "PF inflows - PF outflows" (currently minus £5.8m btw). What their ICR statistic does very handily is be extremely sensitive to tweaks up and down to their expected future losses and inflows, which just happen to be the numbers which are subjective and under RS's remit to tweak as they see fit. Meanwhile, the 'real' figures of PF cash and loans under management are dwarfed or indeed omitted entirely from their headline. Don't get me wrong, I do still invest with RS, but in my view their loanbook performance is steadily declining, not improving. Would be very interested in views to the contrary (on the basis of the actual statistics). Edit: If you think I'm being a stats conspiracy nut, just look again at what is written in black and white on RS's ICR box and think of the Micawber principle: Expected future inflows: £27,248,802 Expected future losses =£33,046,256 "Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery"I'm with you on this one, the real figures behind the propaganda was the first thing I looked at when I saw the release of figures. I'm fed up of platforms manipulating statistics, be it coverage ratios, defaults or returns, and needing to delve to get anywhere near the reality. Transparency and consistency of statistics across platforms is the kind of thing the FCA really should be regulating to protect investors.
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Post by propman on Jul 24, 2019 11:54:54 GMT
Good to see the coverage ratio moving closer to its target range. I will transfer another chunk of ISA funds into RS. M. I am also not fully sold on an improvement. Unfortunately the loss of the underlying PF performance data makes comparissons difficult and has consequently increased my unease and minimum interest rates.
That said, I do not fully agree with r001ish. AIUI income expected is on existing loans only so an absence of additional inflows would mean a declining loanbook. cash in fund over loans O/S is a uesful measure of short term liquidity but with a significant proportion of PF funds being paid over the life of the loans, I think the health of the PF has to include this.
I have more of an issue on the calculation of the expected bad debt. Earlier in the year it was assumed a 5% bad debt rate, this was cut to 3.6% before there was any evidence this is achievable. The big unknown is the proceeds from (or repayments from) defaults. We have no visibility on what value if any exists in these within the PF. It is only such payments that could possibly explain how the net bad debts are so low for older cohorts, yet sales have been made and many of these loans will have already been sold.
Finally, it would be good if we could have an indication on what discount is included in the interest due to reflect early repaymen5ts and defaults.
- PM
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r00lish67
Member of DD Central
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Post by r00lish67 on Jul 24, 2019 12:15:04 GMT
Good to see the coverage ratio moving closer to its target range. I will transfer another chunk of ISA funds into RS. M. I am also not fully sold on an improvement. Unfortunately the loss of the underlying PF performance data makes comparissons difficult and has consequently increased my unease and minimum interest rates.
That said, I do not fully agree with r001ish. AIUI income expected is on existing loans only so an absence of additional inflows would mean a declining loanbook. cash in fund over loans O/S is a uesful measure of short term liquidity but with a significant proportion of PF funds being paid over the life of the loans, I think the health of the PF has to include this.
I have more of an issue on the calculation of the expected bad debt. Earlier in the year it was assumed a 5% bad debt rate, this was cut to 3.6% before there was any evidence this is achievable. The big unknown is the proceeds from (or repayments from) defaults. We have no visibility on what value if any exists in these within the PF. It is only such payments that could possibly explain how the net bad debts are so low for older cohorts, yet sales have been made and many of these loans will have already been sold.
Finally, it would be good if we could have an indication on what discount is included in the interest due to reflect early repaymen5ts and defaults.
- PM
Largely agree with your post. Just for clarity, I do believe future inflows are relevant to the health of the PF, it's just that future inflows of course have to be balanced with future outflows, which they're currently outweighed by quite significantly. So, for me, the future net outflow that RS forecast (of £5.8m) is worth subtracting from PF cash to obtain a more useful picture. Although only more useful to the extent that we trust RS's recent tweaks to their forecasted figures, which as you suggest, isn't a given as they seem pretty ambitious.
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ashtondav
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Post by ashtondav on Jul 24, 2019 16:44:13 GMT
Well RS bests my return at FC! So far...
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alender
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Post by alender on Jul 25, 2019 7:15:38 GMT
But let me express their same numbers a different way: The amount of actual cash they had in the PF as a proportion of loans under management in March 2019 was 1.67%. In July, that figure is 1.43%. So, in terms of cash at the bank, there is 15% less coverage than a few months ago. To put numbers on that, we had £14.1m protecting £837m before and now we have £12.7m protecting £888m. Is that a good thing? I think we have to ask ourselves why RS prefer calculating their headline stat as " (PF cash + PF inflows) / PF outflows". Why not use "(PF cash + PF inflows - PF outflows) / Loans under management" ? I would like to know how RS calculate PF inflows, does this take account of expected defaults and early repayments.
If a loan defaulted and is not fully recovered it would paid less than the full capital/interest and contributions to the PF.
If a loan is repaid early it would contribution less to the PF than if it run to full term.
I believed that when RS made the change that lenders pay to to the PF over the life of the loan instead of at the beginning this weakened the the PF and should be taken into account when calculating coverage ratios.
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wapping35
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Post by wapping35 on Jul 25, 2019 7:44:49 GMT
A lot (may be most) of all these questions about RS's projections on the PF inflows and outflows would get some clarity if an external independent audit of these numbers was carried out.
The last RS update on this issue being " We are also looking at whether our projections can be externally analysed in future."
IMO if the projections are a true and fair reflection of the health of the PF, then an external audit can only be a good thing for both RS and investors.
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r00lish67
Member of DD Central
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Post by r00lish67 on Jul 25, 2019 7:51:55 GMT
But let me express their same numbers a different way: The amount of actual cash they had in the PF as a proportion of loans under management in March 2019 was 1.67%. In July, that figure is 1.43%. So, in terms of cash at the bank, there is 15% less coverage than a few months ago. To put numbers on that, we had £14.1m protecting £837m before and now we have £12.7m protecting £888m. Is that a good thing? I think we have to ask ourselves why RS prefer calculating their headline stat as " (PF cash + PF inflows) / PF outflows". Why not use "(PF cash + PF inflows - PF outflows) / Loans under management" ? I would like to know how RS calculate PF inflows, does this take account of expected defaults and early repayments.
If a loan defaulted and is not fully recovered it would paid less than the full capital/interest and contributions to the PF.
If a loan is repaid early it would contribution less to the PF than if it run to full term.
I believed that when RS made the change that lenders pay to to the PF over the life of the loan instead of at the beginning this weakened the the PF and should be taken into account when calculating coverage ratios.
Struggling to find a decent link, but I'm sure the answer is "yes, they do". But, as wapping35 suggests, that doesn't necessarily mean that what we see is unimpeachably accurate. There's no audit, and in any case forecasts are forecasts. They don't know when borrowers are going to default / repay early so there's obviously scope for significant amount of error. Really it just boils down to trust in their judgement and whether they have their lenders interests at heart, their own, or hopefully both. (this is why I prefer to focus more on numbers that should be concretely 'true').
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