wapping35
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Post by wapping35 on Apr 1, 2019 15:24:11 GMT
I see RS has today cut the target interest rate coverage ratio from a range of 150% to 125%. To 125%. Hmmmmm
No explanation is given as to why RS over the last 3 years has repeated said they saw the 150-125% range as very important, and now it isn't. Nor why, if as below a single number is appropriate, it is not the mid point of the range 137.5% ?
It will of course be interesting to see what the actual coverage number is ? The website says 118% on March 1,2019 and I recall it was down to 116% in mid March before they reverted to the monthly number of 118%. This month we will also see the quarterly review update of that number.
I am sorry but this all looks like under performance justified as being okay by lowering the bar.
Indeed as an investor you could easily argue that this is a major change (increase) in the risk profile of RS as an investment.
W35
Edit:: I note the RS rep on this forum said RS was committed to that 125-150% Range as recently as March 22nd 2019 (see the Monthly Data Updates thread) ! Was that wise given this announcement ?
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Target Interest Coverage Ratio
Today we have updated our target for the Interest Coverage Ratio of the Provision Fund from a range to a single number of 125%. This follows a decision by the RateSetter Board to move to a single number target and, after careful consideration, a decision that 125% was an appropriate level in order to maintain a robust coverage whilst continuing to deliver competitive returns for investors. As a reminder, 125% represents the target coverage over the full lifetime Expected Losses of the loan portfolio.
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wapping35
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Post by wapping35 on Apr 1, 2019 16:00:48 GMT
Just to illustrate the long standing commitment RS have been telling us about the 125-150% range, i have cut pasted below an email RS Customer Services sent me directly on November 4th 2016.
My Bold
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In terms of the coverage ratio, yes we are very much committed to the target of 125-150%. The current ratio is based on anticipated bad debts for a cohort of loans from 2014, when our risk appetite was different. Since then we have become more prudent in our lending and would expect to see an upswing in the coverage ratio in the future. However we are cautious in this respect and do not build in these potential improvements until we see them confirmed via actual performance data.
Edit This came from someone whose title was "Head of Customer Service". I have the name but I believe the forum rules preclude me providing that.
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mark123
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Post by mark123 on Apr 1, 2019 17:01:40 GMT
Ratesetter are introducing changes quite frequently at the moment: - Ceasing to provide detailed loan book information - means that we don't get independent analysis from those who have previously done this
- Reporting statistics less frequently - means that there is a delay in us becoming aware of bad news
- Reducing the provision fund target to 25% margin* - a significant reduction in the safety margin
Any one of these on its own wouldn't particularly worry me. Taken together they must up the risk a notch or two.
I was planning to put in my £20,000 ISA allowance next week. Now I will wait to see how things progress.
Regards,
Mark
* RS like to refer to the provision fund as 118% (which sounds quite a lot) but the first 100% is to cover defaults which are already expected, so my posts will refer to the margin. The provision fund page says this is currently 18% but doesn't say when this number was last updated.
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mark123
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Post by mark123 on Apr 1, 2019 17:25:28 GMT
The provision fund page now says: This is a new definition. The page has a vague chart which indicates a value around 4.7% (it doesn't quote a value or have a scale which makes it easy to see). The chart appears to illustrate a steady increase between Q2 2016 and Q1 2019 with the current value being a record high... a rather less honest presentation than "we used to aim for 125% to 150% but now only aim for 125% and achieve 118%". I wonder if they are testing out this new definition? With the existing metric it is very clear if the provision fund drops from 100% + 18% = 118% to an underfunded 100% - 1% = 99%. With the new metric, it will be difficult to see if the graph drops from 4.7% to 4.0%. My confidence, which allows me to invest over 10% of my pension with RS, is totally dependent on their open business model. This is now in question. Good luck, Mark |
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jlend
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Post by jlend on Apr 1, 2019 18:06:12 GMT
Good afternoon everyone. Today we have posted a RateSetter Notice regarding the Provision Fund Interest Coverage Ratio target. The Notice can be viewed by logging into your account and the text is copied below for reference: Target Interest Coverage Ratio
Today we have updated our target for the Interest Coverage Ratio of the Provision Fund from a range to a single number of 125%. This follows a decision by the RateSetter Board to move to a single number target and, after careful consideration, a decision that 125% was an appropriate level in order to maintain a robust coverage whilst continuing to deliver competitive returns for investors. As a reminder, 125% represents the target coverage over the full lifetime Expected Losses of the loan portfolio. Thank you. Thanks for the update RateSetter 1. Please can you ask the Board if they could provide some rational for choosing the lowest figure in the previous range? 2. Please can you ask for comments on why they have been unable to reach the minimum of the target range for a considerable period of relatively benign times? 3. Does this mean the coverage ration can now go over 150% in the future without them looking to reduce contributions or removing any excess ? Many thanks
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Stonk
Stonking
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Post by Stonk on Apr 2, 2019 10:31:38 GMT
Ratesetter are introducing changes quite frequently at the moment: - Ceasing to provide detailed loan book information - means that we don't get independent analysis from those who have previously done this
- Reporting statistics less frequently - means that there is a delay in us becoming aware of bad news
- Reducing the provision fund target to 25% margin* - a significant reduction in the safety margin
Any one of these on its own wouldn't particularly worry me. Taken together they must up the risk a notch or two.
I have a feeling that the PF figure to be released for April will be a nasty shock. I do hope I am wrong, but all the above measures are designed to reduce visibility and cushion bad news. Especially the reduction of the PF target: "7 percentage points off target" doesn't sound as bad as "118% when we'd ideally like to be at 150%".
The fact that the Statistics page has still not been updated concerns me. New PF numbers are supposed to be generated in the last week of the month.
Normally about this time of the month, we receive a statement, and it includes the major PF figures. I wonder if it will do so this month? If not, I will become extremely concerned.
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Stonk
Stonking
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Post by Stonk on Apr 2, 2019 22:52:18 GMT
Ratesetter are introducing changes quite frequently at the moment: - Ceasing to provide detailed loan book information - means that we don't get independent analysis from those who have previously done this
- Reporting statistics less frequently - means that there is a delay in us becoming aware of bad news
- Reducing the provision fund target to 25% margin* - a significant reduction in the safety margin
Any one of these on its own wouldn't particularly worry me. Taken together they must up the risk a notch or two.
I have a feeling that the PF figure to be released for April will be a nasty shock. I do hope I am wrong, but all the above measures are designed to reduce visibility and cushion bad news. Especially the reduction of the PF target: "7 percentage points off target" doesn't sound as bad as "118% when we'd ideally like to be at 150%".
The fact that the Statistics page has still not been updated concerns me. New PF numbers are supposed to be generated in the last week of the month.
Normally about this time of the month, we receive a statement, and it includes the major PF figures. I wonder if it will do so this month? If not, I will become extremely concerned.
The monthly email statement includes the PF as of 1 March 2019, and the Statistics page is still showing that too. This is different from the past -- the statement has always been used to give the up-to-date PF numbers and how they have change in the month. In combination with the above measures increasing opacity, this is very concerning. It feels to me like RS is finding it difficult to put a good spin on a bad figure.
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aju
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Post by aju on Apr 2, 2019 23:29:52 GMT
I have a feeling that the PF figure to be released for April will be a nasty shock. I do hope I am wrong, but all the above measures are designed to reduce visibility and cushion bad news. Especially the reduction of the PF target: "7 percentage points off target" doesn't sound as bad as "118% when we'd ideally like to be at 150%".
The fact that the Statistics page has still not been updated concerns me. New PF numbers are supposed to be generated in the last week of the month.
Normally about this time of the month, we receive a statement, and it includes the major PF figures. I wonder if it will do so this month? If not, I will become extremely concerned.
The monthly email statement includes the PF as of 1 March 2019, and the Statistics page is still showing that too. This is different from the past -- the statement has always been used to give the up-to-date PF numbers and how they have change in the month. In combination with the above measures increasing opacity, this is very concerning. It feels to me like RS is finding it difficult to put a good spin on a bad figure.
The eMail I got says so perhaps it will change and say (as of the end of month rather than start of month next month) ..... This makes it always in arrears and somewhat after the fact. so its dropped 3% in 2 months, and since 4th december its dropped from 126% to 118% on 1st march. I see that statement emails from RS are way more important than I realised, Zopa's are almost meaningless in comparison. I need to pay more attention I think!
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wapping35
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Post by wapping35 on Apr 3, 2019 6:56:22 GMT
So the March statement gives the PF ratio as at March 1, 2019 (118%)
And looking back the February statement gave the PF ratio as at March 4th , 2019 (119%)
RS how is that an update ?
W35
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aju
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Post by aju on Apr 3, 2019 8:59:13 GMT
So the March statement gives the PF ratio as at March 1, 2019 (118%) And looking back the February statement gave the PF ratio as at March 4th , 2019 (119%) RS how is that an update ? W35 Well spotted, i love it when QA goes out the window and delivery, regardless, wins hands down. Perhaps RS has perfected time travel!
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Post by p2plender on Apr 4, 2019 1:09:14 GMT
When you look around at the state of some loan books then RS is positively sanguine...
Very happy investor here. Keep up the good work RS. 6 figs worth of interest at an average 6% over 8 years.
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Post by RateSetter on Apr 4, 2019 10:31:05 GMT
Good afternoon everyone. Today we have posted a RateSetter Notice regarding the Provision Fund Interest Coverage Ratio target. The Notice can be viewed by logging into your account and the text is copied below for reference: Target Interest Coverage Ratio
Today we have updated our target for the Interest Coverage Ratio of the Provision Fund from a range to a single number of 125%. This follows a decision by the RateSetter Board to move to a single number target and, after careful consideration, a decision that 125% was an appropriate level in order to maintain a robust coverage whilst continuing to deliver competitive returns for investors. As a reminder, 125% represents the target coverage over the full lifetime Expected Losses of the loan portfolio. Thank you. Thanks for the update RateSetter 1. Please can you ask the Board if they could provide some rational for choosing the lowest figure in the previous range? 2. Please can you ask for comments on why they have been unable to reach the minimum of the target range for a considerable period of relatively benign times? 3. Does this mean the coverage ration can now go over 150% in the future without them looking to reduce contributions or removing any excess ? Many thanks , thank you for your questions. The Board considered the allocation of yield from the loans between Investors and the Provision Fund and decided that a target Interest Coverage Ratio of 125% strikes an appropriate and sustainable balance of a robust Provision Fund and attractive returns for investors. For context, since the target Interest Coverage Ratio was introduced in 2016, the Interest Coverage Ratio has fluctuated between 110% and 131% and at all times investors have been earning the returns that they expected. In answer to your question about 150%, it is possible that the Coverage Ratio could achieve that but then the Board would in all likelihood seek to manage the Coverage Ratio back to target. We would add that RateSetter provides for the full lifetime losses of loans via the Provision Fund. The average remaining term of active loans in our portfolio is 21 months, which means that RateSetter has up to 21 months to react to emerging trends. Actions may include: • Changing the mix of loan types in the portfolio as new loans are written • Refining loan decisioning, underwriting and approval processes • More collections and recoveries • Using risk-based pricing to add more funds to the Provision Fund Thank you.
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Post by nutfield on Apr 4, 2019 13:12:24 GMT
When you look around at the state of some loan books then RS is positively sanguine... Very happy investor here. Keep up the good work RS. 6 figs worth of interest at an average 6% over 8 years. My experience over the past 4 years has been similar to p2plender. It makes a pleasant change to see some positivity on these threads. RS do provide the opportunity to escape from the insultingly low interest rates available elsewhere. However, it would be very reassuring if RS could hit their self-set targets for the PF on a more consistent basis.
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Post by propman on Apr 4, 2019 14:38:59 GMT
While I am broadly happy with RS's performance, it is difficult to compare the PF model to those where the full risk is taken by the lender on their loans. Clearly the returns are lower at the start of loans than would be expected in the latter approach as funds are diverted to the PF before bad debts are paying out (only some late payments refunded from early missed payments). Conversely, The upfront payments into the PF have offset deficient PF contributions from earlier year loans allowing higher payouts once defaults start kicking in than the net returns the full risk model would have generated.
The worry is that while interest will continue in full for now, a critical point will be reached when the required contributions to the PF from new loans exceed what can be charged after paying the interest demanded by lenders and the fees required to keep the business going. This will lead to a crisis for the PF and interest & possibly capital withheld from lenders to meet the shortfall. I suspect that this will see a drastic downsizing of RS and possibly its end and a drastic reduction of the returns or even losses to RS investors. The success of RS can only be judged over the economic cycle and we haven't seen a propert downturn since they started. So I think the jury are not so much still out but should not yet be asked to sit!
- PM
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wapping35
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Post by wapping35 on Apr 4, 2019 15:54:29 GMT
Thanks for the update RateSetter 1. Please can you ask the Board if they could provide some rational for choosing the lowest figure in the previous range? 2. Please can you ask for comments on why they have been unable to reach the minimum of the target range for a considerable period of relatively benign times? 3. Does this mean the coverage ration can now go over 150% in the future without them looking to reduce contributions or removing any excess ? Many thanks , thank you for your questions. The Board considered the allocation of yield from the loans between Investors and the Provision Fund and decided that a target Interest Coverage Ratio of 125% strikes an appropriate and sustainable balance of a robust Provision Fund and attractive returns for investors. For context, since the target Interest Coverage Ratio was introduced in 2016, the Interest Coverage Ratio has fluctuated between 110% and 131% and at all times investors have been earning the returns that they expected. In answer to your question about 150%, it is possible that the Coverage Ratio could achieve that but then the Board would in all likelihood seek to manage the Coverage Ratio back to target. We would add that RateSetter provides for the full lifetime losses of loans via the Provision Fund. The average remaining term of active loans in our portfolio is 21 months, which means that RateSetter has up to 21 months to react to emerging trends. Actions may include: • Changing the mix of loan types in the portfolio as new loans are written • Refining loan decisioning, underwriting and approval processes • More collections and recoveries • Using risk-based pricing to add more funds to the Provision Fund Thank you. Dear RateSetter Can you please confirm when we will be told the PF Coverage Ratio (updated number). The last update given was from March 1, 2019 (118%), you indicated we would have monthly updates and thus the number as at April 1, 2019 is now due. The March statement only provided the March 1, 2019 number even though the February statement provided the number for March 4th 2019 (119%). Or are you saying we need to wait until May 1, 2019 for this since you will not be providing an April 1, 2019 number since this month the Q1 2019 update is also due ? Having some clarity as to what RS is planning to communicate would help and would reassure investors as opposed to allowing parties to speculate as to the reasons for the delay. Bare in mind you did explicitly state on March 22nd 2019 that RS was committed to the 125-150% range and then of course you made a total change of course and reverted to 125%, with no explanation as why things changed in only 9 days. May be at that time you were not aware of what the RS management team (Board) was considering... Many thanks
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