r00lish67
Member of DD Central
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Post by r00lish67 on Aug 22, 2019 8:47:23 GMT
Hi RateSetter Reviewing this month's RS stats, I note the trend of your expected future losses dropping is continuing - good stuff. In April 2019, your expected future losses were £34.6m, and now in August 2019 they are stated as £31.3m. What I don't understand is - and perhaps you can clarify - when I look at the expected loss rates by year cohort, your currently forecast losses appear to be almost exactly the same in the two datasets. The overall latest projected lifetime loss has remained at 3.6%, and the individual year cohorts have only varied by 0.1% here and there. So, where is this £3.3m headline improvement in projected future losses driven from if not the breakdown of currently expected losses by year? Shouldn't the average loss in the year cohort view have dropped by 10% too, from 3.6% to 3.2%? |
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Post by propman on Aug 23, 2019 8:35:47 GMT
I suspect that this is a combination of the expected losses being rounded to 0.1% and that this is an average over all loans that they have ever made (ie including those repaid). We no longer get the statistic of expected loss percentage of the outstanding, presumably as they are assuming net recoveries for a few years.
I do find it worrying that the expected losses for 2018 have been reduced desite a 0.2% increase in actual losses in the month. The declining PF on a growing loanbook is not designed to reassure! I just hope that their faith that this year's lending will have 25% less defaults than last is well founded. As lending is added for this year and loans are repaid from earlier years this becomes an ever growing part of the exposure. Unfortunately we can't get a good grasp of the performance on 2019 loans yet as the usage percentage is based on all loans made, the last 4 months of which have not been made long enogh to become defaults merely by non-payment even if no payments were ever made (IVAs, DROs or bankrupcies and possibly communications will bring this forward for a minority). So the increase from 0.2% at 1/7 to 0.3% at 1/8 is not very enlightening.
As I have said before, default estimates for the current year have increased as the yearend approaches in previous years so that the "projected when loan made" (actually the projection at the end of the year in which they were made) becomes an easier benchmark.
So with Brexit looming ever larger my concern level has increased. What do others feel?
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r00lish67
Member of DD Central
Posts: 2,691
Likes: 4,048
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Post by r00lish67 on Aug 23, 2019 9:34:22 GMT
I suspect that this is a combination of the expected losses being rounded to 0.1% and that this is an average over all loans that they have ever made (ie including those repaid). We no longer get the statistic of expected loss percentage of the outstanding, presumably as they are assuming net recoveries for a few years.
I do find it worrying that the expected losses for 2018 have been reduced desite a 0.2% increase in actual losses in the month. The declining PF on a growing loanbook is not designed to reassure! I just hope that their faith that this year's lending will have 25% less defaults than last is well founded. As lending is added for this year and loans are repaid from earlier years this becomes an ever growing part of the exposure. Unfortunately we can't get a good grasp of the performance on 2019 loans yet as the usage percentage is based on all loans made, the last 4 months of which have not been made long enogh to become defaults merely by non-payment even if no payments were ever made (IVAs, DROs or bankrupcies and possibly communications will bring this forward for a minority). So the increase from 0.2% at 1/7 to 0.3% at 1/8 is not very enlightening.
As I have said before, default estimates for the current year have increased as the yearend approaches in previous years so that the "projected when loan made" (actually the projection at the end of the year in which they were made) becomes an easier benchmark.
So with Brexit looming ever larger my concern level has increased. What do others feel?
Although I'm (ever) sceptical about some of their projections, I'm relatively comfortable with the stats that underpin Ratesetter at the moment. I do not however buy that their ICR increasing from 112% a few months ago to 127% today is reflective of any substantially decreased risk. Also just hoping that RS have had their 'black swan' moment with their wholesale lending, and won't find another one!
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Post by RateSetter on Aug 23, 2019 13:13:25 GMT
Hi RateSetter Reviewing this month's RS stats, I note the trend of your expected future losses dropping is continuing - good stuff. In April 2019, your expected future losses were £34.6m, and now in August 2019 they are stated as £31.3m. What I don't understand is - and perhaps you can clarify - when I look at the expected loss rates by year cohort, your currently forecast losses appear to be almost exactly the same in the two datasets. The overall latest projected lifetime loss has remained at 3.6%, and the individual year cohorts have only varied by 0.1% here and there. So, where is this £3.3m headline improvement in projected future losses driven from if not the breakdown of currently expected losses by year? Shouldn't the average loss in the year cohort view have dropped by 10% too, from 3.6% to 3.2%? Hi r00lish67 , thank you for your question. Between the two dates you have referenced, a portion of the expected charge-offs from the 2018 vintage have been incurred and therefore move out of the Future Expected Losses calculation. Loans we have originated to date in 2019 have a lower expected lifetime loss than the prior year and therefore add less to the figure of Future Expected Losses. This is consistent with the lifetime loss rates by vintage remaining broadly the same between April and August. I hope that is useful.
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Post by propman on Aug 23, 2019 15:41:28 GMT
Comparing April with August, the amount on loan has increased £37m (4.3%), the Current PF has decreased £800k (6.1%) offset by the expected fund receipts increasing by £1.6m (6.3%). Expected losses have decreased £3.24m (9.4%), while losses have increased by 0.15% of loans arranged (6% of April losses) mainly 2017 (0.4%) and 2018 (1.1%). This is reflected in the fund usage increasing for all periods from 2015 onwards, 2018 by 10% and 2018 by 22%.
Projected losses have changed little, but projected fund usage has declined 2% overall due to reductions in Pre-2015 (3%), 2016 (4%) and 2018 (2%) while the expected usage of 2015 & 2019 have increased 1% while 2018 has increased 4%.
Hence while the total expected losses has stayed the same, this has broadly been achieved by reducing the expected losses on the remaining loans (from 4% of outstanding to 3.5%).
Of course you would expect losses to crystallise over time even if they are progressing as expected so it is difficult to draw conclusions from this in the absence of info on the proportion repaid. As I have said before, the solvency of the fund is mainly about the performance of the recent years where the majority of the outstanding loans sit. Essentially RS are saying that they will have much lower losses on 2019 loans than they had in 2018. Given the increased property loans, i do hope that this is not assuming that property development loans have a low expected level of default as history shows that these lose money when the market declines (ie the past 9 years aren't indicative of future performance). They must also be assuming further receipts for pre-2015 and 2016 as the reductions in expected usage are high compared to the loans that will still be outstanding. Given that they have had multiple sales of defaulted loans since then, this surprises me.
- PM
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