This is a guest post by Roman Feranec, CEO of Žltý melón (full bio at the end of the article)
Slovakia is an Eastern European country with 5.5 million inhabitants. The country borders with Poland, Czech Republic, Hungary and Ukraine. Regarding its real GDP per capita exceeding 10 thousand EUR, it is one of the most developed countries in eastern European region. Slovakia is a NATO and EU member and in 2009 the country joined Eurozone and started using EURO as its currency.
Peer to peer lending, also known as Marketplace lending, started in Slovakia at the end of 2012. In just two years of operation it proved that it could be an interesting financial alternative with valuable benefits for people in need of money, as well as for people looking for a stable and good appreciation of their savings. This all despite the fact that Slovaks are generally more conservative than their peers in western countries and banks in Slovakia were almost no hit by the recent financial crises.
The Slovak market of unsecured consumer lending reaches a volume of approximately 150 million EUR in new loans every month. There is a big competition between 12 retail banks keeping the average interest rate at about 14 % p.a. P2P loans at the moment represent just a tiny fraction of the market with 0.1 % market share. This can also show a huge growth potential for this alternative.
The first and so far the only domestic P2P loans provider is called Žltý melón. The company was set up by a team of people with long-term experience in banking and financial industry. Žltý melón was launched at the end of 2012 and since then it has provided about 2 million EUR of loans with current volumes of 160 – 200 thousand EUR of new loans per month. It provides ordinary unsecured retail consumer loans – purpose or non-purpose. Recently it has also introduced loans for financing real estates with a guarantee for investors covered by real estate and also company guarantee of major development company. The new product is one of the outcomes of a bigger partnership between Žltý melón and local leading residential developer Cresco Group.
Žltý melón has very decent results with overall net interest income 7.75 % p.a. for investors in its whole historic portfolio. Average interest rate of loans is 15.8 % p.a. For better client risk rating groups, the interest rate is around 7 – 8 %, for riskier groups it is 25+ %. The whole time default is 8 % with declining trend resulting in 12m default below 1 % generating actual net interest income exceeding 14 % p.a.
The second company providing P2P loans in Slovakia is Estonian Bondora. After a greater start in the beginning of 2014, now it provides new loans for Slovak borrowers in a monthly volume of about 20 thousand EUR. The company provides loans also in Estonia, Finland and Spain.
In comparison to western countries, Eastern European region can be also characterized by a limited accessibility of consumers data and higher involvement of people in credit analytical and verification process. This is not a case only for Slovakia, but for the whole region as such. For potential new companies trying to reach the region this creates a more difficult entrance factor. For successful entry, deep knowledge of local environment and conservative risk approach should be kept as key success factors in a long run.
Besides some disadvantages coming from lower purchase power of citizens and limitation of consumer’s data, the Eastern European region provides very interesting opportunities for P2P lending and investors. With properly kept risk assessment model and processes it generates much higher possibilities for investment returns. The region is also less covered by banking sector and people are less indebted than their western peers. Eastern European market is also quite homogeneous with lots of similarities in legal and business environment as well as consumers preferences. In general, the economy of the region is growing faster than the economy of western countries and with lower indebtedness it provides an excellent base for fast market growth.
Author: Roman Feranec
Roman Feranec is the CEO of Žltý melón. He worked as a CFO and COO of Slovak leading real estate company and in a worldwide consulting company Accenture as a consultant for banking and insurance industry. He holds PhD degree in International financial markets.