Writeoffs

I use API-loops to look into write-offs. There are about 95€ on loans not finished and over 240€ all together. But in deed repaid loans had excellent recovery so I don't care too much about the DCA-fees there.

Hello! Since some of you do not participate in Bondora fellows group I copy-paste my answers here for you to read.

Most of the questions you have asked have been answered by Pärtel in the Fellows group (https://www.facebook.com/groups/191879057647930/permalink/551625395006626/ www.facebook.com/groups/191879057647930/permalink/551160675053098/), in our blog and it has been covered in several blog posts (https://www.bondora.com/blog/performance-of-recovery-process-in-bondora/, www.bondora.com/blog/bondoras-servicing-collection-recovery-process/, www.bondora.com/blog/improvements-in-our-debt-collection-recovery-process/, www.bondora.com/blog/follow-up-on-the-collection-process-overview-blogpost/, www.bondora.com/blog/collection-process-overview/).



1. What fees are included in the collection fees and when the fees are deducted?



Collection fees include among others - success fees paid to DCA, fees paid to lawyers, state fees, court fees etc. Collection fees are deducted from the amount of recovered overdue payments that were not paid to Bondora by the borrower directly. So if the customer pays through court, bailiff, DCA or through any other partner, then the collection fee that has been currently on average below 12% (as I wrote in the thread below – I can’t link it) is deducted from the amount received. It is done on a delinquent portfolio level to keep the costs as low as possible. Nothing has changed – the DCAs charge us still up to 65% from the recovered amount but your delinquent portfolio has been affected by this on average by 12% only. There are no charges if the recovery is not successful.



2. Are the fees deducted if the customer recovers fully?

If the customer recovers and the next payments are made in accordance with the active schedule directly to Bondora’s account, no write-offs are done.



3. Why at the end of the schedule a write-off is done?

When the loan has reached the end of its schedule and final write-off is done, then there is always a reason marked for such write off. Mostly it is due to the fact that the court has reduced the amount of the interest or the customer has filed for debt restructuring or bankruptcy etc.



4. Is the order of the write-offs done in accordance with the law?

Yes. It has been checked and confirmed several times by our lawyers and it is in accordance with the applicable legislation.



5. Why these cost are deducted from you and not from the borrower?

The collection fees that we or any other lender, agency, court, can charge a borrower are capped by law – regardless if it was written other way around in the loan agreements. Before the legal structure change in 2015 the loan agreements were signed directly between you and borrower. These loan agreements did say that the collection fees will be paid by the borrower. Unfortunately due to the change in legislation it is not legally possible to enforce this clause in full. In addition to this capped amount the legislation prohibited the use of arbitration courts in matters related to consumers, which was the quickest and cheapest way to collect the debt. We thereafter have developed a process that would be as effective as it was before the changes, but it is more expensive than the previous process that we can’t use anymore. We are using local agencies and lawyers in each of our markets, including Slovakia, and they are responsible for enforcing our cases. Without having a local representative the cases tended to get unnoticed for some period of time. We do charge the borrower in the amount that is legally permitted for the collection fees and therefore the deductions are correspondingly smaller. So the fees collected from the borrower reduce the write-off and increase your cash flow.



6. Validity of the agreements before 2015

In terms of the validity of such change for the agreements signed before the change in legal structure in 2015, the contractual relationship between you and Bondora was regulated by our Terms of Use. Since the change of the legal structure in addition to Terms of Use the contractual relationship between us is regulated by the Assignment Agreement. Both the Terms of Use and the Assignment Agreement allow us to make the changes in the processes we apply for collection and it is valid also for the agreements signed before such process change. I understand that you do not like changes, but due to different reasons, in our case changes in legislation or effectiveness in processes for example, require companies to change their previous processes and terms that you were already familiar with.



7. Recovery in Slovakia

Same process is applied for recovering the funds from this market. We have local lawyer there who is helping us in legal recovery and we currently have two DCA-s who are trying to recover the funds The average collection fees are not higher there than in other markets.



8. Are the collection fees new business model for Bondora?

No. I understand that this is really emotional topic for you but I can’t stress this enough – we as a company are dependent on our recovery process, we do have a stake in most of the loans issued in 2016 and management fee is accounted for every loan we have issued and that is still active. If the collection process does not work (yes, deductions are made from our management fee and our part of loans the same way as from your investments) we do not receive our income. This should be surety for you that we are here to improve the collection and recover as much of the funds as we can, meanwhile keeping the costs as low as possible.

To my knowledge Bondora has never disclosed how it structures its investments, how it picks the loans to invest into and how it decides how much to invest in each loan. Without such disclosure your assurances that Bondora is in the same position with its investors are quite meaningless.

You haven't explained anything about investing into originated loans since beginning of 2015 (aka conflict of interest). Don't you think that these things should be announced in advance?

I've heard about it first from Rein, but I'm really surprised that you are doing it for more than year and a half ...

Do I read it correctly that you don't want to disclose in which loans you have your stake (so we can confirm we are treated equally as other investors)?

Can you tell me why haven't you announced this at the start of the 2015 at the first place?

(Notice the word "will" in that March 2016 blog post:

1. Bondora will stand side-by-side with retail investors on our marketplace. Bondora will retain a share of each loan.)

rahafoorum

I think the Recovery calculation as PrincipalRecovered / EAD1 is too conservative, because you also collect the open interest.

The regulatory definition of Recovery (or 1-LGD) is:  (PrincipalRecovered+InterestRecovered-Costs)/EAD.

EAD has to account for all open principal and interest at the time of default. Unfortunately the correct EAD (principal+interest open at default) can not be calculated anymore from the public reports.

Oh... When I read this

"

Due diligence done for Slovakian borrowers was at times even more comprehensive than for other countries. In addition to all other checks which we were doing in all countries, Slovakian borrowers needed to send us additional documents (for example extracts from the credit bureaus etc). Therefore the whole process of accepting the SVK loan in to the market took a long time. Since it took so long and we asked borrowers to send us additional document, which was not convenient for them, there wasn't that much demand from the borrowers side, which was also one of the reason for closing the SVK market. Other reason was that due to the changes in legislation it was not possible for us to operate as a cross-border lender in SVK market. There are defaults in SVK and we are working on collecting them. We have a local lawyers representing us at courts and local DCA-s. Recovery, unfortunately, as in any other country takes time.
"

I would say this is in clear words stated by Bondora that they were not ready, not prepared, not analyzed enough market in Slovakia before going there. They have not done work and put investors to bad situations

Carlos, I'm sorry for not expressing myself clearly - we have been investing in every loan (except when investors purchase full loans) starting from March 2016. So there is nothing else to disclose - we invest in every loan regardless of the rating or duration or country.