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Post by robinshould on Oct 28, 2015 17:35:52 GMT
The provision fund has been monotonically increasing for months, but in the last week it has reduced by £100k from 16.3M to 16.2M. Something to keep an eye on, and I have no explanation other than a spike in default rates.
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Post by westonkevRS on Oct 29, 2015 8:24:21 GMT
This post is factually correct, and it is fair to say it hasn't been RateSetter's best couple of weeks from a bad debt perspective.
However this thread is worrying because it is focussed on such a small time window. What happens when RateSetter or the economy goes through a prolonged "difficult phase", which for anyone long on the tooth knows is inevitable. Eventually. At some stage the Provision Fund will not be able to grow steadily as it has for 5 years, it will need to use its reserves and potentially dip by a few million or more.
Will everyone (i.e. you my friends on this forum) depart despite a long term delivery of results? At this stage will all lenders panic and stop lending, try to cash out? The biggest risk, IMHO, is platform risk and this is a danger not only due to cash flow but also lender trust. Not quite a bank run, but a lender retraction.
So basically comrades, do not lend with any P2P platform any percentage of your assets you wouldn't be willing to lose. If your lending through P2P is giving you any stress then you have miscalculated your personal risk threshold. The Provision Fund will fluctuate, it's there to be used and I expect a material percentage of it to be used.
Kevin.
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Post by Deleted on Oct 29, 2015 9:24:31 GMT
So what can the "bad couple of weeks" be attributed to? Has there been a material change in RateSetters lending standards? Or just normal fluctuation?
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bigfoot12
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Post by bigfoot12 on Oct 29, 2015 10:27:19 GMT
... it hasn't been RateSetter's best couple of weeks from a bad debt perspective. Are you able to expand on this? Is is lots of small loans with problems, or a small number of larger loans? When a loan defaults and the provision fund pays out, presumably the provision fund acquires the impaired loan? Is some part of that attributed to the total in the provision fund? (i.e. if you think you will get 50% back on a £50k this is a £25k asset which the provision fund owns, would it be included in the valuation?) As some of your larger loans are secured presumably there is a much greater chance of a significant recovery; are these treated differently in this respect? I'm still very happy with Ratesetter it is back to being my number one platform (because AC have had very few loans for the last few months).
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Post by westonkevRS on Oct 29, 2015 12:26:44 GMT
So what can the "bad couple of weeks" be attributed to? Has there been a material change in RateSetters lending standards? Or just normal fluctuation? Just the ebb and flow of things, when bad debt is linked to decisions that happened months or years before it is often just volatility and seasonality due to the volumes. In the scheme of things RateSetter is small and just a few extra loans entering default vs. a previous month can shift the percentages. As RateSetter gets larger, these things get more statistically robust and less lumpy. RateSetter is quite unique in that each borrower pays a set amount into the Provision Fund. On a daily/weekly basis RateSetter cannot manipulate how much goes in (unless we make an RMM Ltd loan to the fund) and therefore the fund will fluctuate in the short term out of our control. I think other P2P platforms determine at a strategic level each day how much to pay in based on daily bad debt performance. I don't think each loan has an attributed allocation to an equivalent fund. This allows them to smooth over any volatility (which is transferred to their balance sheet instead). It's probably a better way of doing things, just not quite the philosophy that RateSetter has. Although never say never, especially if lenders are going to panic every time the fund dips.
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jimbob
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Post by jimbob on Oct 29, 2015 12:51:48 GMT
Confidence in Ratesetter's provision model is the crucial element (Amongst lenders)
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Post by trentenders on Oct 29, 2015 12:52:22 GMT
To be fair, I don't see much panicking going on (not even from the OP).
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Post by Deleted on Oct 29, 2015 12:59:42 GMT
Indeed. Panic? No, just logical behaviour, given that RateSetter markets the Provision Fund so heavily as the major source of protection for lenders.
No surprise then that lenders will watch it closely.
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Post by GSV3MIaC on Oct 29, 2015 13:05:39 GMT
Yes, but you have to know how to handle statistics if you are going to play at maths. I might weigh myself every day, but if I'm 0.5 Kg heavier than yesterday I don't go crash diet. If I gain 0.5Kg every day for a week .. THEN I go do something about it. How does it go .. 'One swallow does not an alcoholic make' .. summat like that. 8>.
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Post by Deleted on Oct 29, 2015 13:12:53 GMT
Which is exactly why I asked whether it was within normal fluctuations.
I don't like the implication about panicking when I ask a perfectly rational question.
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Post by westonkevRS on Oct 29, 2015 13:24:39 GMT
Are you able to expand on this? Is is lots of small loans with problems, or a small number of larger loans? Nothing specific in terms of size, just the ebb and flow of defaults that can be volatile due to our smallish volumes on a weekly basis. When a loan defaults and the provision fund pays out, presumably the provision fund acquires the impaired loan? Is some part of that attributed to the total in the provision fund? (i.e. if you think you will get 50% back on a £50k this is a £25k asset which the provision fund owns, would it be included in the valuation?) As some of your larger loans are secured presumably there is a much greater chance of a significant recovery; are these treated differently in this respect? Yes, the provision fund acquires the impaired loan. The reported Provision Fund is depleted 100% by the balance, and any recoveries are 100% bonus (almost like a new loan contribution). These assets of impaired loans is obviously growing with the defaults of recent years, and the income from the debt management plans and other recoveries will be considerable. All recoveries goes to the Provision Fund. Collections treatment is loan specific, every customer's situation is treated with forbearance and the size of loan doesn't really matter (because we have the resource to collect all equally quickly, we don't need to prioritise). Kevin.
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shimself
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Post by shimself on Oct 29, 2015 14:01:38 GMT
What makes RS decide a loan has to go to the provision fund? Is this done automatically on the fly or is there a sort of Friday Review meeting kinda thing?
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Post by robinshould on Oct 29, 2015 15:15:25 GMT
This post is factually correct, and it is fair to say it hasn't been RateSetter's best couple of weeks from a bad debt perspective. However this thread is worrying because it is focussed on such a small time window. What happens when RateSetter or the economy goes through a prolonged "difficult phase", which for anyone long on the tooth knows is inevitable. Eventually. At some stage the Provision Fund will not be able to grow steadily as it has for 5 years, it will need to use its reserves and potentially dip by a few million or more. Will everyone (i.e. you my friends on this forum) depart despite a long term delivery of results? At this stage will all lenders panic and stop lending, try to cash out? The biggest risk, IMHO, is platform risk and this is a danger not only due to cash flow but also lender trust. Not quite a bank run, but a lender retraction. So basically comrades, do not lend with any P2P platform any percentage of your assets you wouldn't be willing to lose. If your lending through P2P is giving you any stress then you have miscalculated your personal risk threshold. The Provision Fund will fluctuate, it's there to be used and I expect a material percentage of it to be used. Kevin. I posted this thread and am very happy with Kev's response. I am invested in Ratesetter in no small measure, and one of the reasons is the Provision Fund. Another reason is the fact that we can post on this forum and will get a response, 'unofficially' from Ratesetter, and this builds trust, which of course is criticial to the Ratesetter model. So yes, we expect variability in the provision fund, but as I said in my post, we need to keep an eye on it. I subscribe to the view that the PF is there to be used, and to mitigate risk during a 'difficult phase'. For me personnally I don't think that attempting to cash out in such a situation is all that wise or optimal, but reducing further top up until the bad times ebb might be.
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adrianc
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Post by adrianc on Oct 29, 2015 15:31:30 GMT
Yes, the provision fund acquires the impaired loan. The reported Provision Fund is depleted 100% by the balance, and any recoveries are 100% bonus (almost like a new loan contribution). These assets of impaired loans is obviously growing with the defaults of recent years, and the income from the debt management plans and other recoveries will be considerable. All recoveries goes to the Provision Fund. So what does a lender see? An "early repayment"?
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pikestaff
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Post by pikestaff on Oct 29, 2015 16:06:26 GMT
So what does a lender see? An "early repayment"? Yes.
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