Post by james on Nov 3, 2015 3:42:24 GMT
It's interesting to see that during a period of declining interest rates for lenders Zopa has been doing more risky lending than in the past, with default projections increasing from 1.41 in 2013, with the Safeguard Trust introduced in April that year, to 2.40% and now 3.38%. It looks as though once a protection fund was introduced and investors stopped paying so much attention to bad debt performance Zopa increased the level of risk that investors were taking. If Zopa ever told investors that they were moving to risk levels with 2.4 times the projected default rate I missed the announcement. It can be a really good move for investors to do more risky lending to get higher margins but in the case of Zopa the risk premium doesn't seem to have been going to lenders. Maybe it was all going to Zopa in fees for larger loan volumes and to borrowers in lower rates?
Also interesting that the initial display hides the only year in their history where there was a major economic problem and where defaults were way above projections. The Safeguard Trust only has about 18% margin above projected defaults while 2008 defaults were 50.5% above even the revised default projections. Currently the default is to hide every year where all loans have run to their original term, through 2010, and show only partial years 2011 onwards,
Projected interest rates today are 3.8% for 2-3 year loans and 5.0% in 4-5 years. Here's the default projection and actuals history in percentages:
You'll need to click on "Show earlier data" to see the full history on their web page.
Also some caution is needed because if I recall correctly Zopa increased the projected default levels for 2008 and earlier periods but doesn't compare its actual performance to what it was telling investors when they took out the loans originally for those years. I've no idea if they have also been doing this for more recent years.
Also interesting that the initial display hides the only year in their history where there was a major economic problem and where defaults were way above projections. The Safeguard Trust only has about 18% margin above projected defaults while 2008 defaults were 50.5% above even the revised default projections. Currently the default is to hide every year where all loans have run to their original term, through 2010, and show only partial years 2011 onwards,
Projected interest rates today are 3.8% for 2-3 year loans and 5.0% in 4-5 years. Here's the default projection and actuals history in percentages:
| arrears over 45 days | Expected defaults | Actual defaults | |
| 2015 | 0.01 | 3.38 | 0.04 |
| 2014 | 0.03 | 2.30 | 0.61 |
| 2013 | 0.02 | 1.41 | 0.55 |
| 2012 | 0.08 | 1.50 | 0.78 |
| 2011 | 0.31 | 2.01 | 0.96 |
| 2010 | 0.47 | 2.59 | 2.18 |
| 2009 | no data | 2.66 | 2.04 |
| 2008 | no data | 3.68 | 5.54 |
| 2007 | no data | 2.68 | 0.52 |
| 2006 | no data | 1.77 | 0.18 |
| 2005 | no data | 1.61 | 0.15 |
You'll need to click on "Show earlier data" to see the full history on their web page.
Also some caution is needed because if I recall correctly Zopa increased the projected default levels for 2008 and earlier periods but doesn't compare its actual performance to what it was telling investors when they took out the loans originally for those years. I've no idea if they have also been doing this for more recent years.