Credit risk performance update - January 2020
Ines Maia joined Lending Works as Head of Risk in February 2019. Ines has more than 10 years of experience in risk management, credit risk decisioning and analytics. Prior to Lending Works, Ines was responsible for credit risk management for Personal Loans at a UK high street bank, where she was a member of the credit committee and risk committee, and she started her career in financial services consulting at Deloitte.
As Head of Risk, Ines is responsible for the development and implementation of Lending Works' risk management approach. Ines also leads a team of credit risk analysts and data scientists who use advanced data science, such as machine learning, to create powerful credit models which drive our lending decisions.
In 2020, Ines will actively contribute to our blog by providing regular updates on credit performance. In the first quarterly performance update, Ines provides an overview of the portfolio performance and key underlining trends.
In line with our risk management framework, today we published our Q4 2019 performance update on our statistics page here. We are pleased to announce that expected annual investor returns have remained unchanged, compared to our last communication on the 29 November 2019.
Average retail investor returns on past cohorts (2014-2019) have remained stable at 5.2% p.a. for Growth and 4.2% p.a. for Flexible, which is aligned to our objective of delivering consistent returns to investors. Interest rates on new investments on the platform also remain stable, currently at 5.4% for Growth and 4.0% for Flexible.
Performance has remained stable
Each quarter we update our performance statistics after running a range of credit risk and investor statistical models. The output from that exercise as at 31 December 2019 is that expected annual returns and expected annual loss rates have remained unchanged since the 29 November 2019 update.
Expected annual losses have been revised to reflect both the most recent performance of the active loans in the portfolio and the credit risk of new loans funded in Q4 2019. Expected losses have remained in line with our forecasts, and we do not anticipate annual loss rates increasing materially in the future.
Lifetime default rate curves have also been updated to reflect the most recent performance of the portfolio, where we observe the cohorts continuing to mature in line with expectations. In contrast, 2014-2016 default rate curves have reached their plateau.
The Lending Works Shield
On 29 November, we announced changes to the way the Lending Works Shield operates to ensure it is more resilient and robust over the long-term. The changes mean that interest rates paid to investors are now variable, if required, to account for variations in the performance of the portfolio.
The Shield future income, which is required to cover expected losses, has remained relatively stable since the last update at £5,443,815 (£5,378,200 at Oct-19 month-end) which reflects the stable performance of the portfolio and consequently the stable expected annual investor returns.
The Shield cash balance decreased from £412,131 to £75,095 as we move into the new Lending Works Shield model, which is funded primarily via ongoing net interest margin earned on the portfolio rather than via upfront contributions. We would like to remind investors that the Shield cash balance is the actual amount of cash currently held by Lending Works Trustee Limited, but this balance is topped up each day as loan repayments are made by borrowers. Due to the variable nature of the retail investor interest rates, we manage the cash balance to ensure it always has an adequate balance to fulfil its function, which it continues to do in line with the Lending Works Shield policy.
Our credit risk models are continuously monitored and improved to ensure that the Shield future income covers the expected future losses of the portfolio. As a result, the Shield cash balance should no longer be a key risk metric when analysing the performance of your investment.
Our investors and loans profile
The profile of our investors and loans has remained stable, compared to the last update, and we do not anticipate any significant changes to the profile of customers in the near future.
You can find out more about our typical customers on our statistics page.
Our next statistics page update will be in April 2020, and it will be our initial view of Q1 2020 performance, as well as continuing to update on all past cohorts.
Our website offers information about saving, investing, tax and other financial matters, but not personal advice. If you're not sure whether peer-to-peer lending is right for you, please seek independent financial advice, and if you decide to invest with Lending Works, please read our Key Lender Information PDF first.
Since opening our doors back in 2014, we’ve always prided ourselves on living and breathing two key principles at Lending Works: innovation, and putting the customer first in everything we do.
Wednesday’s Budget speech, coupled with the cut to Bank of England rates, represented a decisive response to the coronavirus. Here we analyse the impact it will have on mitigating disruption from Covid-19, along with the long-term implications of this significant fiscal stimulus.
Rumblings from the Treasury ahead of next week's Budget suggest tax grabs will be needed to fund increased spending, and it appears UK enterprise could be in the firing line. Here we articulate why targeting entrepreneurs and small business is ill advised.
In a difficult climate, customer acquisition and lead generation present stern challenges for UK retailers, and a great deal of marketing spend invariably gets directed towards getting feet through the door.
Over the last decade, there can be little dispute that the reputation of mainstream banks – and particularly the so-called ‘Big Four’ (HSBC, Barclays, Lloyds and RBS) – is at its lowest ebb.
The 2019-20 ISA season has been a damp squib, with banks disinterested in attracting savers’ cash, rates cut, and the stock market in freefall. However, the emergence of the IFISA means alternatives beckon for those seeking a stable middle ground in terms of risk and reward.
In a decade of slow recovery, the rapid rise in asset prices has been the standout. But how sustainable has price growth been, and could we be in the midst of a bubble?
Most people consider income tax to be a given, but in the UK it is barely two centuries old. In this article, we look at how this tax has developed over the years, and also why it is set to remain at the core of our tax system for many decades to come.
Open banking celebrated its second birthday last month, but has the ‘revolution for financial services’ that was promised actually come to pass? In this article, we look at the progress the initiative has made so far, and what the future holds in the face of high levels of scepticism.
On the face of it, a 'broken' energy market needed fixing, and the price caps introduced in early 2019 were heralded as the solution. But, one year later, have they actually helped consumers save?