GLI Finance’s chief executive thinks that the UK’s peer-to-peer finance industry could be heading towards a “car crash” of escalating default rates.
Andrew Whelan, who heads up the alternative finance-focused investment firm, said on Monday that the current low level of defaulting loans “is the one thing that worries me at the moment”.
“The platforms’ loan books have grown so quickly that their default rates haven’t caught up,” he told Peer-to-Peer Finance News on the sidelines of the LendIt conference at the InterContinental London – The O2.
“The other factor that will impact default rates, aside from time, is the global economy. That’s what could create a car crash.
“The biggest fear globally is what will happen if the economy doesn’t recover as expected. We have no quantitative easing or rate cuts left to implement – the government’s only remaining tool would be to boost inflation.”
Whelan added that he was also concerned about the gap between pricing of loans in the US and the UK.
“They’re a lot more expensive in the US, which I think is correct as they have taken in the risk of defaults,” he said.
“I think UK platforms are pricing loans too low in order to drive volume ahead of planned initial public offerings.”
GLI Finance, which invests in a range of alternative finance providers including peer-to-peer bond platform UK Bond Network, last month reported a £6.9m first-half loss. Whelan blamed it on his predecessor’s spending “splurge”, saying that he had made too many investments and left the business short of cash flow.
Last week, the firm said that it had sold off a number of assets as a part of its strategic review.
Whelan said that he is not planning to buy any new assets at the moment and has tapered off the firm’s investment in other underperforming assets.