RATESETTER has altered its method for estimating outflows from its provision fund for consumer loans.
Its previous methodology grouped consumer loans by risk, term, channel and origination to estimate performance and assess when the provision fund may be needed.
But it has introduced a new method that will assess the performance of each consumer loan using a scorecard, with further analysis on loans of more than nine months old that looks at the borrower’s current credit information and how the loan has performed over time.
This will determine anticipated provision fund losses and the interest coverage ratio.
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“We aim to ensure that the coverage ratio is as objective and accurate as possible,” Michael Hoare (pictured), chief credit officer at RateSetter, said.
“Therefore, every quarter we review the RateSetter loan portfolio and a range of data including analysis on how loans are performing and how we can expect them to perform, changes to the mix of loan types, refinements in our loan decisioning, underwriting and approvals processes and trends and updates in collections and recoveries.
“We use this analysis to update the figures that underpin the coverage ratio as notify investors each quarter when this is complete.”
He said the size of the provision fund and interest coverage ratio can be altered by changing the mix of loan types in the portfolio as new loans are written, refining loan decisions, more collections and recoveries and using risk-based pricing to add more funds to it.
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