littleoldlady
Member of DD Central
Running down all platforms due to age
Posts: 3,045
Likes: 1,862
|
Post by littleoldlady on Sept 26, 2016 8:01:10 GMT
I'm in favor of the PF, but i do think it creates a false sense of security, however i would be even happier if the PF was not held at 2% of loan book but allowed to grow, with 2% of all loans going into the PF and not being taken out when the loan pays (which is what i assume happens) over time the PF would then be well able to cope with multiple defaults. Out of curiosity, i wonder what the PF balance would be today, had this been the case.Nearly £4m instead of £2.5m. Both of these figures are nominal - being 2% of loans; I do not know if the PF actually exists as a cash fund.
|
|
|
|
Post by savingstream on Sept 26, 2016 9:00:53 GMT
I'm in favor of the PF, but i do think it creates a false sense of security, however i would be even happier if the PF was not held at 2% of loan book but allowed to grow, with 2% of all loans going into the PF and not being taken out when the loan pays (which is what i assume happens) over time the PF would then be well able to cope with multiple defaults. Out of curiosity, i wonder what the PF balance would be today, had this been the case.Nearly £4m instead of £2.5m. Both of these figures are nominal - being 2% of loans; I do not know if the PF actually exists as a cash fund. The PF is maintained as a cash fund and stands at 2% of the outstanding loan book.
|
|
|
|
Post by martin44 on Sept 26, 2016 13:29:38 GMT
Nearly £4m instead of £2.5m. Both of these figures are nominal - being 2% of loans; I do not know if the PF actually exists as a cash fund. The PF is maintained as a cash fund and stands at 2% of the outstanding loan book. . Any thoughts about a future provision fund that would be left to grow?
|
|
|
|
Post by meledor on Sept 26, 2016 13:50:37 GMT
The PF is maintained as a cash fund and stands at 2% of the outstanding loan book. . Any thoughts about a future provision fund that would be left to grow?
Keeping the SS 2% in the provision fund beyond the maturity of the loan would inevitably mean SS reducing the interest we are paid down to 10%, so I would not be happy with that. I am not generally in favour of platforms with provision funds but as the SS interest rate is comparable with other sites that do not have a provision fund the fact that SS have one is not an issue. But any attempts to build up the importance of the provision fund at the expense of return would make it less attractive.
|
|
mikes1531
Member of DD Central
Posts: 6,453
Likes: 2,320
|
Post by mikes1531 on Sept 26, 2016 15:50:51 GMT
Keeping the SS 2% in the provision fund beyond the maturity of the loan would inevitably mean SS reducing the interest we are paid down to 10%, so I would not be happy with that. I suspect meledor is forgetting that SS have said that if the PF ever is used then they will top it up back to the 2% level. If they actually do that, then if defaults cost more than 2% of lifetime SS loans, they'd be worse off than if they only put 2% of every loan into the PF and left it there. So I don't see why putting 2% of every loan into the PF and leaving it there "would inevitably mean SS reducing the interest".
|
|
|
|
Post by meledor on Sept 26, 2016 18:53:58 GMT
Keeping the SS 2% in the provision fund beyond the maturity of the loan would inevitably mean SS reducing the interest we are paid down to 10%, so I would not be happy with that. I suspect meledor is forgetting that SS have said that if the PF ever is used then they will top it up back to the 2% level. If they actually do that, then if defaults cost more than 2% of lifetime SS loans, they'd be worse off than if they only put 2% of every loan into the PF and left it there. So I don't see why putting 2% of every loan into the PF and leaving it there "would inevitably mean SS reducing the interest". Hopefully we will see in a few days time with the 2015 accounts how profitable SS is, but a platform making a profit is still rare in P2P circles. Changing the provision fund such that the 2% stays there will increase SS's funding cost to 14% and so reduce or eliminate profits. The profitability of a platform is an important measure of its long term viability so any reduction in profit would be a concern to me.
In this thread some have questioned the ability of SS to survive a major default/loss. Although I disagree with the scenario any large loss beyond the value of the security could in theory so exceed the provision fund that it would relegate your comment about SS topping up the PF to the status of 'wish list' because it would not have sufficient reserves to do so.
|
|
|
|
Post by martin44 on Sept 26, 2016 19:17:05 GMT
savingstream . Any thoughts about a future provision fund that would be left to grow?
Keeping the SS 2% in the provision fund beyond the maturity of the loan would inevitably mean SS reducing the interest we are paid down to 10%, so I would not be happy with that. I am not generally in favour of platforms with provision funds but as the SS interest rate is comparable with other sites that do not have a provision fund the fact that SS have one is not an issue. But any attempts to build up the importance of the provision fund at the expense of return would make it less attractive.
Not sure i would agree with that, some time in the distant past it was put to SS what actually happens to the 2% draw-down from the PF when a loan pays up and they confirmed that it was theirs and went into their pot, so i would assume from that, that it is an additional/inclusive fee that they charge the borrower and not based around our 12% interest. I stand to be corrected tho. As for the benefit and attraction of a provision fund, a large ever growing provision fund , surely can only ever prove beneficial to all us lenders and a further beneficial attraction to future SS lenders.
|
|
mikes1531
Member of DD Central
Posts: 6,453
Likes: 2,320
|
Post by mikes1531 on Sept 26, 2016 19:19:33 GMT
Hopefully we will see in a few days time with the 2015 accounts how profitable SS is, but a platform making a profit is still rare in P2P circles. Changing the provision fund such that the 2% stays there will increase SS's funding cost to 14% and so reduce or eliminate profits. The profitability of a platform is an important measure of its long term viability so any reduction in profit would be a concern to me. If SS actually do keep the PF topped up as they've said they would, then if the actual default rate is the equivalent of 2% then their profit would be the same in either scenario. If the default rate is lower than 2% they'd be better off with the current plan, and if the default rate is higher than 2% they'd be better off putting 2% into the PF, leaving it there, and letting the investors take the hit from the excess defaults. With the current scheme, with excess defaults SS suffer and investors are better protected. In the other scheme, excess defaults would mean investors suffer and SS are better insulated from defaults. I haven't a clue what the actual default rate will turn out to be, so I don't know which scheme would be better for investors and which scheme would be better for SS. From the point-of-view of Lendy and their backers, I'd have thought they'd prefer the stability of the alternative scheme, but that's JMHO. In this thread some have questioned the ability of SS to survive a major default/loss. Although I disagree with the scenario any large loss beyond the value of the security could in theory so exceed the provision fund that it would relegate your comment about SS topping up the PF to the status of 'wish list' because it would not have sufficient reserves to do so. If this scenario comes to pass, it will mean SS's promise to keep the PF topped up couldn't be relied on, and that could cause a crisis of confidence that could fatally damage the platform. The bottom line is that the platform's success depends on there being only a 'tolerable' level of defaults -- whatever the level of tolerable might be. Excess defaults would sink the platform, just as they have other platforms -- such as Yes-Secure and Quakle, IIRC.
|
|
|
|
Post by meledor on Sept 27, 2016 8:38:29 GMT
Keeping the SS 2% in the provision fund beyond the maturity of the loan would inevitably mean SS reducing the interest we are paid down to 10%, so I would not be happy with that. I am not generally in favour of platforms with provision funds but as the SS interest rate is comparable with other sites that do not have a provision fund the fact that SS have one is not an issue. But any attempts to build up the importance of the provision fund at the expense of return would make it less attractive.
Not sure i would agree with that, some time in the distant past it was put to SS what actually happens to the 2% draw-down from the PF when a loan pays up and they confirmed that it was theirs and went into their pot, so i would assume from that, that it is an additional/inclusive fee that they charge the borrower and not based around our 12% interest. I stand to be corrected tho. As for the benefit and attraction of a provision fund, a large ever growing provision fund , surely can only ever prove beneficial to all us lenders and a further beneficial attraction to future SS lenders. If SS have 'confirmed that it was theirs' then surely you have to agree with me! Because if it is theirs it is part of their profit, but if this 2% were to be kept in the provision fund then it is no longer 'theirs' as it then belongs to the PF, and therefore the profit of SS has been reduced with implications for the viability of the platform.
However beneficial you may think a provision fund is it comes with a cost. I am amazed at how much time is spent discussing the provision fund because our security lies in the quality of the asset; the provision fund merely provides a little extra comfort. But I'm even more amazed by the idea that somehow the provision fund can be increased such that we get the benefit of extra security without the cost in the form of a reduction in the rate we receive.
|
|
|
|
Post by martin44 on Sept 27, 2016 14:22:03 GMT
Not sure i would agree with that, some time in the distant past it was put to SS what actually happens to the 2% draw-down from the PF when a loan pays up and they confirmed that it was theirs and went into their pot, so i would assume from that, that it is an additional/inclusive fee that they charge the borrower and not based around our 12% interest. I stand to be corrected tho. As for the benefit and attraction of a provision fund, a large ever growing provision fund , surely can only ever prove beneficial to all us lenders and a further beneficial attraction to future SS lenders. If SS have 'confirmed that it was theirs' then surely you have to agree with me! Because if it is theirs it is part of their profit, but if this 2% were to be kept in the provision fund then it is no longer 'theirs' as it then belongs to the PF, and therefore the profit of SS has been reduced with implications for the viability of the platform.
However beneficial you may think a provision fund is it comes with a cost. I am amazed at how much time is spent discussing the provision fund because our security lies in the quality of the asset; the provision fund merely provides a little extra comfort. But I'm even more amazed by the idea that somehow the provision fund can be increased such that we get the benefit of extra security without the cost in the form of a reduction in the rate we receive.
The provision fund is not held by SS , it is a separate company Lendy Provision Reserve Ltd so i would assume that any profits, draw-downs, bank interest etc that accumulate via the provision fund will be profits for that company and not SS , so i would guess any alterations as to how the provision fund is funded will have no detrimental effects on SS's profitability, and certainly would have no detrimental effect on the 12% we earn. But i would agree that it would have an effect on the profitability of lendy provision reserve ltd .
|
|
|
|
Post by meledor on Sept 27, 2016 15:45:05 GMT
Of course the provision fund is in a separate company but it is funded by SS so I do not understand how you can possibly say "I would guess any alterations as to how the provision fund is funded will have no detrimental effects on SS's profitability".
SS have a loan book which we fund at 12%. SS also put 2% of each loan into a provision fund and then withdraw that 2% at maturity. Therefore at present SS are only incurring 12% plus the finance cost of keeping their money in the provision fund until the loan matures. What you have proposed is that SS pay us the 12% and permanently pay the 2% to the provision fund. Therefore there has to be an increase in cost because SS are now paying out 14%.
|
|
|
|
Post by Deleted on Sept 27, 2016 16:04:14 GMT
I suspect meledor is forgetting that SS have said that if the PF ever is used then they will top it up back to the 2% level. If they actually do that, then if defaults cost more than 2% of lifetime SS loans, they'd be worse off than if they only put 2% of every loan into the PF and left it there. So I don't see why putting 2% of every loan into the PF and leaving it there "would inevitably mean SS reducing the interest". Hopefully we will see in a few days time with the 2015 accounts how profitable SS is, but a platform making a profit is still rare in P2P circles. Changing the provision fund such that the 2% stays there will increase SS's funding cost to 14% and so reduce or eliminate profits. The profitability of a platform is an important measure of its long term viability so any reduction in profit would be a concern to me.
I have to say that your sentence above in bold is completely false. The provision fund has been maintained at 2% level from SS inception and the funding cost is the same since there. SS said they would maintain it at 2% and I do not see how you could claim this not to be true. Also funding cost is not diectly proportional to profits. SS is passing by to us a share of their income. Tipically they charge 1.5% and pay us 1% a month, plus they have the overheads and a float to maintain the INPL model. But the funding cost has been constant for years... Of course any major default would put strain into SS finances, so we all hope that for any default suffered, they can recover the lent amount or close to it... But it is the exact same situation for any P2P company, with or without the PF. Defaults with wrong valuations are the potental killers for the platform itself. Nothing new there. I am personally happy with the current model of a PF fixed at 2% of the book value and topped up if and when necessary. Of course any
|
|
|
|
Post by martin44 on Sept 27, 2016 16:38:25 GMT
Of course the provision fund is in a separate company but it is funded by SS so I do not understand how you can possibly say "I would guess any alterations as to how the provision fund is funded will have no detrimental effects on SS's profitability".
SS have a loan book which we fund at 12%. SS also put 2% of each loan into a provision fund and then withdraw that 2% at maturity. Therefore at present SS are only incurring 12% plus the finance cost of keeping their money in the provision fund until the loan matures. What you have proposed is that SS pay us the 12% and permanently pay the 2% to the provision fund. Therefore there has to be an increase in cost because SS are now paying out 14%. My bold above is the very point i am touching on, do you know this as a fact or an assumption? i am not sure that SS do withdraw this 2% at maturity, i can only assume as i do not know, but i have a feeling this 2% is indeed withdrawn from the PF, but is that 2% sent back to SS or is this a profit for the provision company. I would assume that the 2% (as stated by me up thread) was an additional fee charged by SS. edit. The 2% PF addition is in fact a portion of fees charged by SS to the borrower.
|
|
mikes1531
Member of DD Central
Posts: 6,453
Likes: 2,320
|
Post by mikes1531 on Sept 27, 2016 17:35:55 GMT
... do you know this as a fact or an assumption? i am not sure that SS do withdraw this 2% at maturity, i can only assume as i do not know, but i have a feeling this 2% is indeed withdrawn from the PF, but is that 2% sent back to SS or is this a profit for the provision company. : All we know is that the amount shown on the website as being in the PF -- it's in the middle of the 'How It Works' page -- is always 2% of the total loan book. So whenever a loan is repaid, it decreases by 2% of the repaid loan's value. I think the question of whether it goes back to SS or to the provision company is irrelevant -- it doesn't really matter because SS, Lendy, and LPRL are all part of the same 'group' and have a common ownership. (If someone gives me a fiver, I really don't care whether it goes into my left pocket or my right pocket!)
|
|
mikes1531
Member of DD Central
Posts: 6,453
Likes: 2,320
|
Post by mikes1531 on Sept 27, 2016 17:47:08 GMT
Of course any major default would put strain into SS finances, so we all hope that for any default suffered, they can recover the lent amount or close to it... But it is the exact same situation for any P2P company, with or without the PF. @hor1997: I can agree with the first sentence above, but not with the second. If a platform without a PF has a default and the recovery is low enough that their investors have a loss, then that loss is borne only by those investors. It may have no direct impact on the platform's finances. (It would have a loss only if some of its expenses or deferred fees are not paid via the recovery process. Every platform will have its own Ts&Cs that control the order of distribution of recovery proceeds.) Only if the circumstances causing the loss are such that investors decide they want to rethink they amount they have invested via the platform is there going to be any significant impact on the non-PF platform.
|
|
