Defaults and Losses: What You Need to Know
Glossary
Firstly, to ensure you fully understand defaults and losses, we have created a glossary of the key terms:
- Volume: The total amount lent in a given year.
- Non-performing: Generally speaking, this refers to a loan more than 45 days late with a repayment or which is in breach of the conditions of the loan in some way.
- Default: A loan more than 120 days late with a repayment. Crucially, this isn’t the same as an expected loss.
- Expected loss: Any lent money that is not expected to be recovered.
Standardised Reporting
Standardised reporting across the peer-to-peer lending industry is important. That’s why we’re happy to provide figures using the P2P Finance Association’s requirements:
| Volume | Non-performing | Defaults |
Expected Loss |
||||
|---|---|---|---|---|---|---|---|
| £ | £ | % | £ | % | £ | % | |
| Total | 40,943,745 | 1,860,000 | 4.54 | 350,000 | 0.85 | 50,000 | 0.12 |
| 2014 | 29,860,250 | 700,000 | 2.34 | 350,000 | 1.17 | 50,000 | 0.17 |
| 2013 | 11,083,495 | 1,160,000 | 10.47 | 0 | 0 | 0 | 0 |
Correct at 26 September 2014
When we started the business at the beginning of 2013 we anticipated a default rate of 1.5% and a loss rate of 0.5%. Just over 18 months later and we’re in a solid position.
Our standardised report shows in 2013 that although several loans were briefly classed as non-performing, there were no losses. This is thanks to our strict and detailed underwriting and the tangible security taken on each loan.
Our Defaults and Losses
For 2014 to date, some loans have defaulted, for a number of reasons, including one case where unfortunately the borrower died, so we are working sensitively through the estate. In another, the borrower is refinancing which, ironically, means we’re suffering from bank delays.
However, because of the strong security we have in place there is no expected loss faced by investors on either of these loans. The recovery process is underway and we’re confident of a successful outcome.
The situation was more complex for a £700k loan that went into default:
- We almost immediately recovered £400k.
- A plan has been set and agreed over the next 12 months for the remaining money, plus interest for our investors. With security covering the outstanding amount, we hope to make a full recovery of lender capital and interest.
We are dedicated to keeping lenders updated, which is why we will continue to report on the raw numbers of individual loans.
Assetz Capital’s Solution
Although we use standardised reporting we think there are more useful ways of reporting this data. That’s why we believe any loan which is late or in breach of the loan covenants should be classed as a default.
Therefore, we monitor all loans extremely closely and will investigate if a repayment is late, taking action if necessary.
If lending is done properly, the majority of defaults should be recovered successfully, and we maintain that, for an accurate idea of how bad debt will affect returns, investors should look at the loss rate.
If you want to find out more about how to become a lender, you can do so on our site, and you can also get in touch with us directly if you have any questions about losses or defaults.
- September 26, 2014