RATESETTER has set up a new committee on expected losses as part of a review of the way it monitors and reports on credit risk.
The panel, which will come into effect later this month, comprises the peer-to-peer lender’s chief executive Rhydian Lewis, its chief finance officer Harry Russell and various heads of consumer and commercial credit risk.
The consumer and business lending platform will update its expected losses figures every quarter to comply with new guidelines recently approved by its board risk committee, and also looks to align disclosure of the same data on its public website.
It is also planning to add yet more information to its performance statistics page to provide clear estimates of the losses it expects over the lifetime of its loan book. The data page will detail the losses that have already materialised and future expected losses for each year of origination.
“Taken together, these changes are materially improving not only the accuracy with which we can price for risk, but also how we report it,” the platform said. “Naturally, we have a strong incentive to do both of these jobs well. We will continue to strengthen our risk function.”
Boosting expected losses data is the latest of a batch of strategic changes RateSetter has put in place to price risk more accurately following higher-than-expected losses on its 2014 and 2015 loans.
The adjustments included phasing out lending through certain channels which were underperforming and tightening lending criteria, as well as adding new credit scorecards and risk models over the last six months.
“The initial result is that the loan book for 2016, our biggest year of lending so far, is performing within our expectations to date, with 43 per cent of lending from that year repaid,” said RateSetter.
“The longer-term result will be that we can price risk more accurately. Because expected loss is one of the key drivers behind the provision fund coverage ratio, this will in turn help us to build the ratio back up to within its target range of 125 per cent and 150 per cent.”
The fund is currently providing a capital coverage of 118 per cent against expected losses.