ZOPA has stood by its decision to tighten its credit policy, claiming its loan performance has remained steady despite default expectations increasing slightly.
Andrew Lawson (pictured), chief product officer for the peer-to-peer lender, admitted growth in Zopa’s loanbook had been slower due to a stricter lending approach adopted in 2016, amid concerns of increasing bad debts in the wider consumer credit sector.
However, he said the lack of a “significant difference” in loan performance showed the tightening of its credit procedure was correct.
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Zopa’s data as of September 2018 shows its expected defaults for loans when originated in 2017 was 4.52 per cent, but this has now been revised to 5.08 per cent, with 2.82 per cent of actual defaults.
It has revised its default projections on 2016 lending to 4.63 per cent, from 4.14 per cent originally. Four per cent of loans made that year have defaulted so far.
The platform is currently expecting 3.32 per cent of loans made this year to default with the actual rate at 0.16 per cent.
Its estimated average annual return is between four and five per cent, which is line with the target for its Core and Plus products, which aim for interest of 4.5 per cent and 5.2 per cent respectively.
“Overall, our loan performance has been broadly the same,” Lawson said.
“Of course, there are some combinations of cohorts, risk markets, and terms that have slightly higher loss expectations than we previously thought. But, equally, there are mixes where they are lower.
“So, whilst our pro-active tightening of our credit policy since early 2016 has meant that we’ve grown loan volumes slower than we would otherwise have done, this has proven to be the right decision so far.”
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