jonny5
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Post by jonny5 on Jul 24, 2017 21:30:03 GMT
Was I dreaming , or has the fund coverage jumped from 116% to 123% today. How  ? |
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Post by keyboardworrier on Jul 24, 2017 21:58:30 GMT
I keep a close eye on the provision fund, it was at 119% and had a total of £21,781,141 in it, now it's at 123% with £21,837,313. I'm guessing the expected future losses has decreased due to the action they took the other day?
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jlend
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Post by jlend on Jul 25, 2017 20:42:32 GMT
I keep a close eye on the provision fund, it was at 119% and had a total of £21,781,141 in it, now it's at 123% with £21,837,313. I'm guessing the expected future losses has decreased due to the action they took the other day? Probably due to this... Today we have updated our expected loss figure, following the quarterly Expected Loss Committee. The result is that the expected loss on all outstanding loans covered by the Provision Fund has fallen by 0.1 percentage point, from 2.9% to 2.8%.
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Post by propman on Aug 29, 2017 17:32:50 GMT
So we are down to 115%, with £19,787,412 in the Fund. THe strange thing is I didn't notice significant defaults, the difference appears to be a reduced Contracted Future Income, presumably a reassessment of the amount of early repayments after the recent large repayments. With 6% of the fund required if the 3+ arrears loans default, this is looking a little more worrying.
Also, I note the large reduction in lending in the last few weeks. Combined with the high rates achieved, I assume this is down to limited funds available possibly due to the money required to meet the fee free withdrawals. While I hope that this means that they will have been able to be more selective and so get more secure loans &/or higher contributions to the fund, I am concerned that there will be a reduction in the excess Fund from 2017 to meet the high defaults from earlier years (there is a £1m deficit predicted for the Fund to the end of 2016 despite an assumption that recoveries on defaults will exceed new defaults for 2013 & 2014 by £250k despite £280k of loans 2+ payments late and 2015 defaults predicted at about 60% of currently late loans).
Any thoughts?
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wapping35
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Post by wapping35 on Sept 1, 2017 16:45:04 GMT
I think it is explained in the monthly e;mail.
Pasted the relevant part...
This month’s changes to the Provision Fund
You may already be aware that Non-Standard Finance Plc, a consumer finance specialist, recently acquired guarantor loans platform George Banco Limited. As part of the deal, all RateSetter lending via George Banco was refinanced by Non-Standard Finance Plc. This means that all George Banco loans (approximately £30m) have now been repaid to RateSetter lenders in full.
As a result of this, the Provision Fund numbers have changed: Expected Future Provision Fund Inflows from George Banco loans have been removed, as have Expected Future Losses from these loans. Because the Expected Future Provision Fund Inflows from these loans exceeded the Expected Future Losses (that is, we provisioned more than we expected to lose), the effect is one-off reduction in the Interest Coverage Ratio and Capital Coverage Ratio.
Provision fund coverage ratio
116%
Change in coverage ratio from last month
-7%
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Post by propman on Sept 4, 2017 7:04:20 GMT
Thanks
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sb
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Post by sb on Sept 5, 2017 6:36:13 GMT
I think it is explained in the monthly e;mail. Pasted the relevant part... This month’s changes to the Provision Fund You may already be aware that Non-Standard Finance Plc, a consumer finance specialist, recently acquired guarantor loans platform George Banco Limited. As part of the deal, all RateSetter lending via George Banco was refinanced by Non-Standard Finance Plc. This means that all George Banco loans (approximately £30m) have now been repaid to RateSetter lenders in full. As a result of this, the Provision Fund numbers have changed: Expected Future Provision Fund Inflows from George Banco loans have been removed, as have Expected Future Losses from these loans. Because the Expected Future Provision Fund Inflows from these loans exceeded the Expected Future Losses (that is, we provisioned more than we expected to lose), the effect is one-off reduction in the Interest Coverage Ratio and Capital Coverage Ratio. Provision fund coverage ratio 116% Change in coverage ratio from last month -7% This sounds like a BS. It implies that cover ratio for loans through George Banco was 374% (PF dropped by 2mln, expected losses by 0.547mln). If it is true then it means that PF ratio is overestimated as its calculations don't take into account risk of early repayment of loans. It makes sense by borrowers to repay loans with high cover ratio at par, which will leave loans with low cover ratio.
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pikestaff
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Post by pikestaff on Sept 5, 2017 7:11:00 GMT
...If it is true then it means that PF ratio is overestimated as its calculations don't take into account risk of early repayment of loans... Not exactly. RS have always been clear that expected future losses are covered to an extent by expected future provision fund inflows on the performing loans. I'm sure their model will include an allowance for early repayments on an appropriate statistical basis. What we had here was a one-off sale of a large chunk of their book (and one of the best bits, it would appear). Unsurprisingly this has made a bit of a dent in the coverage. For me this highlights that statistical models don't always cope well with real events.
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alender
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Post by alender on Sept 5, 2017 8:06:58 GMT
If this is the case and there are enough early repayments from the better bits in the book then the PF coverage ratio will drop like a stone to the point where the PF cannot cope.
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wapping35
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Post by wapping35 on Sept 5, 2017 8:45:40 GMT
My reading of the PF effect of the George Banco loan (bail out), was since the GB loans where far higher than average risk, they had far higher than average PF future contributions. Kind of makes sense when you look at the type of lenders GB was / is involved with.
The "bail out" means the loans 100% repaid, but the unintended consequence is the higher future contributions are forfeit. Thus the PF coverage ratio fell.
Also as others are saying this is the downside of having the PF funded by future "risk of default contributions" as opposed to the upfront ones which we had in the past. I know there are upsides of this kind of funding model, but clearly there are also substantial downsides.
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jlend
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Post by jlend on Sept 5, 2017 9:43:46 GMT
Worth remembering that the cash figure displayed on the website is not the only asset of the provision fund particularly as ratesetter diversifies it's borrow base
For example Property developer, SME loans are secured on assets in addition to the PF cash balance. The assets total over £130m
Also the provision fund takes on non performing loans and reinburses investors. We see this via early repayments which can be defaulted loans or borrowers paying off their loan early. Hence the provision fund has a pool of defaulted loans that it does get some money back from that goes into the provision fund or as they have done in the past they can sell on to a third party. This money is also not included in the projection for future cash income of the provision fund.
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Post by propman on Sept 5, 2017 14:00:25 GMT
Worth remembering that the cash figure displayed on the website is not the only asset of the provision fund particularly as ratesetter diversifies it's borrow base For example Property developer, SME loans are secured on assets in addition to the PF cash balance. The assets total over £130m Also the provision fund takes on non performing loans and reinburses investors. We see this via early repayments which can be defaulted loans or borrowers paying off their loan early. Hence the provision fund has a pool of defaulted loans that it does get some money back from that goes into the provision fund or as they have done in the past they can sell on to a third party. This money is also not included in the projection for future cash income of the provision fund. However, RS deduct the expected repayments from defaulted loans from the expected bad debts (hence expected negative future payouts for 2 years). Arguably this should be included in projected future income that would reduce the coverage ratio (reducing the higher Fund rather than the lower bad debt estimate). Also, the security will be limited to the debt secured on the asset concerned. So it will not give additional funds to cover bad debts, but reduce the ultimate default (possibly to 0) of the loans concerned. This will be taken into account when assessing the expected bad debts on these loans. Personally I am very nervous about these. RS have previously said that the expected bad debts are estimated from the performance of similar loans from an earlier period. As we have had no significant property downturn, this might mean an assumption of a very low bad debt from the loans secured on property. As I have said before, the recipients of property loans often have little other than the asset to repay the loan. Indeed many are "limited recourse" so no recourse to anything else. So rather than thinking of the security as reducing the bad debts when they arise, in many cases if the recoverable amount from the security drops below the loan, the balance will be the bad debt.
Re the possibility of the coverage being reduced by early repayments exceeding expectations, I am less worried. If things go bad, I would expect repayments to reduce not increase.
- PM
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wapping35
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Post by wapping35 on Oct 17, 2017 18:48:53 GMT
Just noticed the coverage ratio has hit 111% , I believe that is an all time low.
I see it was 118% on Sept 30th per the monthly email.
W35
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dorset
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Post by dorset on Oct 18, 2017 8:32:42 GMT
Just noticed the coverage ratio has hit 111% , I believe that is an all time low. I see it was 118% on Sept 30th per the monthly email. W35 Sorry if this is an obvious question but at what point does RS cut interest payments to top up the fund? When coverage is down to 100% or more or less than 100%? Presumably this will be the point at which we might see a liquidity run on rolling.
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ashtondav
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Post by ashtondav on Oct 18, 2017 9:21:07 GMT
Cover is completely unacceptable at this stage of the cycle. The PF has a maximum target of 150% coverage precisely because in a severe downturn defaults would easily exceed 50% of expected defaults.
AFAICS if the expected default rate is c3% we should budget for a default rate of 4.5% in extremis. An interest rate haircut will be inevitable in the next downturn, however hopefully this will only last a couple of years.
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