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Credit risk performance update - January 2022

Today we published our Q4 2021 performance update on our statistics page.


Expected annual returns


Both expected annual returns and expected annual loss rates have remained relatively stable compared to our Q3 2021 update.

Expected annual losses have been updated to reflect the most recent portfolio performance as we continue to closely monitor the full impact of COVID-19 on our loan customers, mainly due to the current uncertainty created by the Omicron variant.

Overall expected annual losses have remained stable at approximately 4%.

Expected annual returns have remained stable and are broadly in line with the forecast included in our previous performance update.

The average expected annual return on the 2014-2019 cohorts has remained stable at approximately 4.3% p.a. for Growth investments and 3.7% p.a. for Flexible.

The 2020 and 2021 cohorts' average returns are 2.6% p.a. and 4.5% p.a. for Growth and 1.9% and 4.0%p.a. for Flexible, respectively, which is very stable compared to the Q3 2021 performance update.

We are also pleased to inform you that negative interest rates are no longer required for the 2017 and 2018 cohorts. However, interest rate diversions to the Shield will continue to be applied to 2019 and earlier cohorts. The 2020 and 2021 cohorts will continue to pay the target rate of interest.

The negative interest adjustments will be updated as per the below for the 2017 and 2018 cohorts:

We believe prudence continues to be sensible as the full impacts of the new Omicron variant on the UK economy are understood. That said, if the measures we have taken are overly prudent, the Lender Rate Adjustment mechanism will be used to increase expected annual returns received by investors over the lifetime of the loans in their portfolios.

We will continue to do quarterly performance updates on the active portfolio to all our retail investors.


The Lending Works Shield


The future income required to cover expected losses decreased to £2.2m, compared to £3.4m in Q3 2021. The £2.2m reflects the most recent performance of the portfolio and our latest assessment of the expected credit losses in our portfolio as it matures.

The Shield cash balance increased from £0.63m in Q3 2021 to £1.13m in Q4 2021. Shield cash utilisation continues to be maximised to pay arrears and default to retail investors. Still, we observed a decrease in payments in December, which contributes to the higher balances at the end of the year.


Next update


Our next statistics page update will be in April 2022.