Funding Circle Germany Publishes Loanbook Performance Figures

After months and years of announcements and waiting Funding Circle Germany yesterday published loan book performance figures. Data reported is on all loans since launch on March 30th, 2014 (at that time Zencap) and as of June 30th, 2017. In total there were 920 loans.

Figures:

Total loan origination volume 66,560,800 EUR  100%
Repaid loan volume 26,859,284 EUR 40.35%
Loan volume in default (more than 90 days overdue): 3,988,632 EUR 5.99%
Outstanding principal: 35,712,885 EUR 53.65%
Total interest paid to investors: 4,578,552 EUR

The outstanding principal of 35,712,885 EUR (100%) is further categorized:
Current: 33,293,583 EUR 93.23%
Loans that are less than 30 days overdue: 1,664,005 EUR 4,66%
Loans that are 30 to 60 days overdue: 421,902 EUR 1.18%
Loans that are 60 to 90 days overdue: 333,394 EUR 0.93%

Average weighted interest rate: 8.41%

I would have linked to the source here, but Funding Circle pulled the figures within hours after publication and the page now returns a 404 error (I did save a screen shot before they were pulled). I reached out via email to Funding Circle asking for the reasons, but have not received a reply up to the point of publication of this article.
Update: I received a reply from Funding Circle stating that the figures were not correct and did not match Funding Circle’s global reporting format. An example given was that payments made by defaulted loans were omitted. Funding Circle strives to publish the corrected figures asap.
2nd update July 13th: Funding Circle has now published updated figures in changes format. They are online here.

Phrasing it differently one could say that 9.6% (6,4M/66,6) of all issued loans are currently overdue or in default.

In my view the figures give a very bleak – but correct picture of the state of Funding Circle Germany’s loan book. Overdue and default figures are high. With nearly 6% of the loan amount in default and more than another 6% of the remaining loans overdue, there is a very high probability that many investors will incur (after tax) losses. Usually German investors cannot offset default losses against interest earned.

My portfolio

I invested into 27 loans with 100 EUR each (the minimum bid). I stopped investing already in February 2015, after only 10 month, when it became clear to me that Funding Circle Germany had higher overdue figures than expected. However as there is no secondary market at Funding Circle Germany I was stuck with the loans until maturity.

Of my 27 loans the status today is:
– 22 repaid
– 4 overdue (2 of them for 256 days !)
– 1 default (in collection)

I already received back 2,303 EUR of the principal, so there is only about 15% of my investment amount still outstanding. I might get away with a return around zero, as my defaults + overdues are still lower than the interest paid, but it will be close as I have to pay taxes on the full interest earned regardless of defaults. My dashboard still claims 4.12% yield for my portfolio, which does not reflect reality as I see it. The only chance for that to happen would be full recovery of defaults and overdues, which is an unlikely scenario.


My own portfolio at Funding Circle Germany

Investor sentiment towards Funding Circle Germany seems to have turned mostly negative to sarcastic in the past two years if you look at the massive critic on the Funding Circle forum at P2P-Kredite.com. Funding Circle Germany no longer publishes statistics regularly on new monthly loan volumes.

A Look At My Current Bondora Portfolio

In October 2012 I started to invest into p2p lending at Bondora. I periodically blog about my experiences – you can read my update from Dec. 2015 here. Over the total time I did deposit 14,000 Euro and withdrew 13,380 Euro.  So as you see I cashed out an amount almost equal to the amounts I deposited. The good news is that I still own 705 loan parts with an outstanding principal of 10,362 Euro at an average interest rate of 23.74%. Of these 6,355 Euro are in current loans, 1,004 Euro in overdue loans and 3,003 Euro in 60+ days overdue loans. The reason that I still have such a large loan book despite cashing out nearly as much as I paid in, is that I reinvested nearly all interest and principal repayments from 2012 till 2015.

Bondora shows a net return of 24.6% for my portfolio. In my own calculations, using XIRR in Excel, assuming that 30% of my 60+days overdue and 15% of my overdue loans will not be recovered, my ROI calculations result in 17.0% return.

Let’s look how my remaining portfolio is distributed by several criteria

Bondora portfolio by country

Chart 1: My portfolio by country

Bondora Portfolio by rating

Chart 2: My portfolio by rating

Bondora portfolio ditribution by loan purpose

Chart 3: My portfolio by loan purpose

Recent developments

A lot has changed in the past four months. With the introduction of new regulation in Estonia, Bondora now prefunds all loans and also keeps a stake in the loans (‘skin in the game‘). Manual bidding on loans is not as straightforward as previously because now investors can make bids, which are not binding until allocation happens. This leads to situations were say 155% of the loan amount has been bid for, but the allocation has not happened yet, because some of the bidding investors have not enough cash in their account to match their bids and those bids that are sufficiently funded don’t add up to 100%. Furthermore Bondora gives bid preference to bids with larger amounts. If at allocation time bids with enough cash add up to more than 100%, then the bids for higher amounts will succeed, while the smaller amount bids will be rejected.

Continue reading

Ratesetter Updates Legal Structure of the Provision Fund

RatesetterRatesetter informed its investors that it will update the legal structure of the provision fund by changing it from a trust to a limited company. Ratesetter was the first UK p2p lending marketplace to introduce a fund to protect investors against defaults (up to the amount available in the fund). So far no retail investor has lost a penny on Ratesetter since the launch in 2010.

Excerpt from the announcement: Continue reading

Main UK P2P Lending Services Agree on Standard for Calculating Defaults

A long time downside of p2p lending was that each company used its own definition for defaults making it hard to impossible for all but experts to compare figures for different p2p lending companies. The Peer-to-Peer Finance Association (P2PFA), a trade organisation of British p2p lending companies, now addressed this issue with a new standard: ‘In future, all P2PFA members will calculate defaults on their loans in a standard way, helping consumers compare between platforms and to strengthen standards of industry disclosure. The new default rate calculation is currently being implemented and will be published on each individual P2PFA member’s website.’

P2PFA definitions of Non-Performing Loans and Defaults:

Definition of Non-Performing Loan:
A loan should be considered to be a ’Non-Performing Loan’, ‘Impaired’ or in ‘Arrears’, where the relevant borrower of the loan is:
(a) more than 45 days overdue in an interest payment; or
(b) more than 45 days
overdue with a principal repayment; or
(c) legal action for enforcement of the loan has commenced; or
(d) the loan is being or has been renegotiated with a borrower, or
(e) the loan has not otherwise been in full compliance.
The amount of arrears is the amount overdue for payment in a) and b) above. Continue reading

P2P Lending Site Isepankur Improves Loan Quality

Estonian p2p lending service isePankur successfully improved the loan quality in 2010. The company added several validation steps for loan applications. On top of the existing credit bureau checks and it’s own scoring model isePankur introduced several manual checks on the borrowers in May and July. Since September borrowers need to submit bank statements which isePankur uses to verify information presented in the loan application. The measures implemented are listed in detail here.

CEO Pärtel Tomberg told P2P-Banking.com: “…  these [new] loans will … be the most profitable social banking loans for investors across the globe”.

To prove this claim Isepankur is publishing real time performance data on its marketplace.


(See Isepankur site for larger size interactive charts)

Unlike other companies you can see the quality of loans per month so the growth rate of the portfolio will not hide the actual returns from loans issued previously.‘ says Pärtel Tomberg.

The charts reflect the drastic reduction of bad debt from loans issued after May 2010 and the very positive impact on lender returns. Continue reading

Annualized Default Rate

I just watched the recorded webcast. It’s great that Lending Club uses these to communicate to the users. However I found the way some information were presented to the lenders to be controversial. About 11 minutes into the presentation the company advertises the Annualized Default Rate of 2.36%.  Looking at the slide at 0:13:29 the company states “Less than Three Loans out of the 100 Default”. Is that right – does the percentage of Annualized Default Rate figure match the percentage of loans that default?

This does not match Lendingclub’s own definition of Annualized Default Rate, which is:

Annualized Default Rate is calculated by dividing the total amount of loans in default by the total amount of loans issued for more than 120 days, divided by the number of months loans in default have been outstanding and multiplied by twelve. The loans issued for less than 120 days are excluded from the calculation because loans are unlikely to default during the first 120 days.

I’ll create the following example to illustrate what Annualized Default Rate means to lenders. Imagine a bad-lucked lender that loaned 10 loans with 100 US$ each 12 months ago. First all went well, but after 10 months suddenly 5 of his borrowers failed to pay and defaulted. Colloquially that lender might swear: “That sucks, 50% of my loans defaulted”

Under the formula this gives us an annualized default rate of 8.3%. That sounds much better, doesn’t it? The important difference is that the annualized default rate figure is just a snapshot taken right now. It will rise over the time until the loans mature (if the lender does not invest in new loans). So after 36 months it will be much higher while the figure “50% of my loans defaulted” will not have changed after 36 months (if the other 5 loans continue to be paid on time).
You may want to ask, if the figure could fall instead of rise? No, for a given portfolio the annualized default rate can only go up over time – no loan can return form a default but addituionally further loans could default.

So what does that mean?

First: An annualized default rate of 2,36% does not match the message “Less than Three Loans out of the 100 Default”.
Second: Most of Lending Club’s loans are very young and the overall loan volume is growing. So even if – due to growth – the annualized default rate stays at 2,36% overall, it will rise higher for given loan portfolios orginated in the past. (Compare: ‘Lending Club Default Rates Much Higher than Initially Expected?‘).

Note that the same effects impact the Net Annualized Return rate.