jlend
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Post by jlend on Oct 18, 2017 10:13:41 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. It is interesting that RS think they will be profitable next year as per this article a couple of weeks ago www.p2pfinancenews.co.uk/2017/10/05/ratesetter-profit-ceo/I would hope that they make sure the provision fund is within their stated target range before declaring profits.
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ashtondav
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Post by ashtondav on Oct 18, 2017 12:14:47 GMT
I would hope that they make sure the provision fund is within their stated target range before declaring profits. Are those pigs I see traversing the sky...
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wapping35
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Post by wapping35 on Oct 18, 2017 13:29:41 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. My reading of the PF rules is an interest rate hair cut would occur if the fund falls to 100%. No doubt this would be at the discretion of the PF Trustees (i.e. RS management). In looking at the PF details the major recent change seems to be the YTD 2017 projected provision fund usage has risen from 78% to 85%. I suspect this is due to their Q3 review of the loan book. I have to say I was surprised RS were forecasting such a large PF surplus for 2017 given 2014-16 the PF projected usage has been/is +100%. I do concur with other opinions that some kind of interest rate hair cut is pretty inevitable within the next 1-2 years (unless you believe the economy is immune to a down turn). I just hope it is a trim and not a shave, I still have a pretty significant amount invested in the 5 year.
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jlend
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Post by jlend on Oct 18, 2017 19:38:24 GMT
This is what they say
Yesterday we 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 increased by 0.2 percentage points, from 2.8% to 3.0%.
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Post by martinde21 on Oct 18, 2017 20:33:54 GMT
I think it's good RS updated their expected loss figure yesterday and have disclosed this quickly and transparently on their website. On new loan underwriting, I think they might widen the spread between borrower & lender rates to cover increased provisions to the PF, and perhaps also tighten their credit scoring thresholds. They do have a good recoveries team, which has an incentive to perform (as the risk is with them to recover defaults to a large extent). In my humble opinion, Zopa is in a worse position as they seem to be exposed much more to higher risk borrowers, have no incentive really to recover defaults with the lapse of Safeguard and have slashed their forecast returns.
I personally would be very interested to know if the RS Loss committee has modelled the impact of inflation and interest rate sizes say by 0.5%, and I'd be amazed if they haven't...
My own personal strategy is to withdraw capital repayments & interest at the moment and invest in non-consumer, secured lending, diversifying my portfolio a bit more. I am having good experiences of Archover, as I like the concept of credit-insured lending on Receivables. Just sayin. ![:)](//storage.proboards.com/forum/images/smiley/smiley.png)
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Post by propman on Oct 19, 2017 14:26:42 GMT
This is what they say Yesterday we 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 increased by 0.2 percentage points, from 2.8% to 3.0%. I agree that this is appropriate, I have been thinking that they were underestimating defaults for some time. First 6 months of 2017 look to have much lower defaults, early days yet and possibly a single unlucky default, but July has made a bad start.
I suspect that they have deliberately increased credit fees beyond what they need (67% expected usage is merely aiming for a 150% recovery after all). Essentially the PF is expected to be £500k less than expected defaults to the end of 2015 with a further £450k deficit for 2016. In addition, this is after recoveries from defaults that are likely to take some time to realise. As a result, it is only the surplus from 2017 that keeps it solvent so they have to build a surplus. The worry is that this incentivises them to maintain loan volumes as this is more easily achieved on higher lending. In addition, whjile lending continues they can use the current loan payments to meet the liability for the past and justify it by over optimistic default estimates.
Still worried how the PF make up is reconciled as "Credit fees received" minus "actual losses to date" is £860k less than the "Contributions" in the PF. In addition, the 2016 payments 3+ payments in arrears have remained around £1.2-£1.4m for many weeks and significantly more than the 2 payments in arrears amount. This shows that a significant amount is >3 payments in arrears. It always used to be stated that the loans were paid out when more than 3 payments in arrears. WHen did they change the policy? This is exposing the PF to more interest as well as potentially understating the payments due.
- PM
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