Lending carries a risk of loss in the event of default, so we have a model which indicates expected defaults and losses on our platform.
When a borrower takes out a loan, there are many conditions within the loan agreement that the borrower will have to adhere to.
The simplest of these is that they make the agreed loan repayments on time without fail. Breaking these conditions is commonly known as defaults, which trigger further conditions in the loan agreement, allowing the lender to take action. The lender has the right to ask for immediate repayment of the loan, recognise the default but take no further action at this point, or to renegotiate the terms of the loan.
Losses can occur after defaults, but not necessarily every time. It is important to understand the difference between the two.
If a default is triggered and the borrower cannot cure the problem, then the lender could take legal action to recover the money from the borrower. If subsequently the borrower does not have enough assets or security to repay the outstanding amount then the lender could lose some or even all of their investment.
Figures shown are correct as of 1st November 2017.
|Actual arrears (> 45 days)||0.00%||0.00%||0.00%||0.00%||0.00%||0.00%||0.00%|
|Total outstanding loan balances on loans more than 45 days late but not defaulted, as a percentage of amount lent in the calendar year.|
|Expected lifetime loss rate||0.00%||0.75%||0.67%||0.42%||0.20%||0.45%||0.28%|
|Expected bad debt (expected defaults less recoveries) over the lifetime of the loans as a percentage of amount lent in a calendar year (NB this is not an annualised number). Estimated at origination of the loans.|
|Actual lifetime loss rate||0.00%||0.00%||6.13%||2.22%||0.00%||0.38%||0.08%|
|Total bad debt (defaults less actual recoveries) over the lifetime of the loans as a percentage of amount lent in a calendar year (NB this is not an annualised number).|
|Projected lifetime loss rate||0.00%||0.00%||6.21%||2.34%||0.14%||0.77%||0.34%|
|Latest bad debt projection for each yearly vintage using actuals from the vintage to date plus projected future losses.|
|Maturity of each yearly vintage, defined as principal repaid as a percentage of amount lent in a calendar year (excluding bad debts)|
|Actual bad debt fund usage||0.00%||0.00%||0.00%||0.00%||0.00%||0.00%||0.00%|
|Bad debt fund usage (total payments made by reserve fund (less recoveries) in relation to each annual cohort, as a percentage of total contributions to the reserve fund from those loans. Excludes bank interest income and other administrative fees and charges.|
Our data has also been independently verified by Altfi Data who have found our 1-year net return to be 12.4% and 3-year net return to be 27.7% as at 30 September 2017. http://www.altfidata.com/marketdata/
No automatic Investment Account (Quick Access Account, 30 Day Access Account, Great British Business Account, Green Energy Account or Property Secured Account) has suffered a loss for investors to date.
£Nil Losses To Date.
Regardless of the good results to date, Assetz Capital also regularly reviews the level of capital held in the Provision Funds versus the potential losses on the stress tested portfolio of loan parts in each Investment Account. We do not publish the coverage of potential losses on our portfolio in benign economic conditions as apart from losses being close to zero this resulting large loss coverage ratio would be misleading given economic cycles happen with regularity.
Instead we apply two levels of stress tests. Based upon the loan portfolio remaining static until repaid / recovered over a 5 year cycle and the application of the Assetz Capital Stress Test assumptions the Provision Funds have at least 4x coverage of any expected losses on the loan holdings in each Investment Account.
We then stress our security values right up to the latest BOE 2016 Stress Test levels. Under these conditions the provision funds still have capital of at least 3x coverage of expected losses based on our current probability of default. In a downturn, for the types of borrowers we have, the probability of default can triple on average. Tripling the expected losses still means each Provision Fund is still expected to cover the expected losses of all of the loans currently held in each Investment Account.
We aim to continue to fund the Provision Fund for each Investment Account to ensure 3x coverage of expected losses under the BOE Stress Test of security held by each loan in each account and will publish the current coverage ratios in the table below.
Date of last stress test was June 2016
|Investment Account||Assetz Capital Stress Test||BoE 2016 Stress Test|
|Expected Loss||Coverage||Expected Loss||Coverage|
|Quick Access Account and
30-Day Access Account
|Great British Business Account||0.27%||4.33x||0.39%||3.00x|
|Green Energy Account||0.06%||4.00x||0.08%||3.00x|
|Property Secured Account||The PSA was launched on 7th June 2017 and therefore has not been subjected to the 2016 BoE Stress Test.
It will be included in the upcoming stress tests for the whole loan book based on the BoE 2017 figures.
A potential default
When a potential event of default is identified on a loan, we will first of all clarify the situation with the borrower to avoid any misunderstanding and avoid unnecessary costs.
In event of default
If an event of default has occurred, in most cases the borrower will be allowed a short window to rectify and cure the default.
When a loan is declared in default it will become repayable by the borrower, technically on demand and interest will accrue at our default rate which is usually around 4% per annum above the published rate on the loan.
In all cases
Lenders will be advised promptly through the website. If the event of default is of a serious nature (such that no mitigation window is deemed appropriate) or the borrower does not rectify the default within the allowed timescale, then the loan will be formally declared in default and the default procedures set out in our terms and conditions will be enacted.
If a borrower's loan repayment is not credited to their account within seven days of the repayment date it will be categorised as a late payment. This allows for potential delays which routinely occur within the banking system and in uploading transactions to the database.