One advantage of Bondora is that this p2p lending market makes a lot of data available for download to investors. Recently Bondora added data on ‘Secondary market transaction history‘. In this article I will
- analyse the data
- use some examples to show how volatile the prices of traded loan parts can be
- discuss some of the potential reasons for the inefficiency of the market
- conclude with my opinion.
The basics of the Bondora secondary market
Bondora (at that time Isepankur) launched the secondary market in March 2013.
Sellers can list any current and overdue loan parts for sale as long they are not 60+ days overdue. Loan parts stay listed until they are sold or cancelled by seller for a maximum of 30 days. Loan parts are traded at principal value. Any unpaid accrued interest, overdue interest, overdue principal and unpaid late charges are disregarded for the sales prices and will – provided the borrower pays up anytime after the transaction – cause a windfall profit for the buyer. The seller can impose a discount or markup on the principal. The discount ca go as low as -99% whereas the possible markup was limited to 5% until July 24th, 2014 and increased to a maximum of 40% thereafter.
If a transaction occurs Bondora charges the seller and the buyer a 1.5% transaction fee each.
Using the data download
The download file I used had 159.7K data lines. This includes 66K cancelled listings and 35K failed listings. For the further analysis I used the 59.4K successful transactions.
On first look the market seems efficient: 8.3% of loan parts sold within 15 minutes. 20% sell within the first hour. But I felt the aggregate data might not tell the full story and I started to look how pricing (discount and markups) developed on individual loans.
First example is a 10,000 Euro A900 loan originated to an Estonian borrower on May 2013. This loan defaulted in October 2013 which ended the possibility to trade loan parts. In this short timespan 62 loan parts with a principal value of 1,748 Euro were traded (that’s out of 356 that were listed).
I took the transactions and spread them out over time on the x-axis and graphed the discount rate (blue line, left y-axis).
Chart 1: Example loan 1 (see larger image).
As you can see the price fluctuates widely from -10% discount to 5% markup, while the basic condition – the loan was overdue since begin of August did not change. I also added the orange line that shows how many days the loan was overdue when the seller listed it (DebtDaysAtStart) and the red line that shows how many days the loan was overdue when the transaction actually took place (DebtDaysAtEnd). At those times where the loan was overdue the distance between the two lines shows how long it took for a listed loan part before it sold (see green mark as example). Continue reading