FUNDING Circle is seeing uncertainty in its core markets in the US and Europe but is still anticipating higher returns for loans taken out in the first half of 2019.
The peer-to-peer lender’s chief risk officer Jerome Le Luel flagged Brexit uncertainty in the UK, rising trade tensions in the Netherlands and Germany, and the US trade war with China as well as the Federal Reserve’s decision to cut interest rates as being behind market instability.
As a result, Funding Circle has “prudently adjusted” its lending criteria to strengthen the resilience of its loanbook, positioning it for any potential changes to the wider economy, he added.
Despite this, the company is yet to see its returns significantly impacted and the lender is projecting yields of between five and 8.5 per cent for loans made in these core markets in the first half of 2019.
With regards to the UK, Le Luel commented that despite Brexit uncertainties, overall the UK’s small- and medium-sized enterprises (SME) have remained stable. An expansion in consumer borrowing since 2013 has led to an increase in the amount of individuals becoming insolvent, however, and this has had some knock-on effect on the insolvency rate of UK SMEs.
Both the German and Dutch economies are continuing to perform well and the insolvency rate for both individuals and businesses has continued to fall. Global trade tensions have caused a reduction in business confidence although levels are still higher than during the global financial crisis.
The US economy has been performing well, Le Luel commented. But he added that although it is “currently very healthy, we are mindful that the current business cycle has lasted for a record 10 years.”
As of 30 June, Funding Circle is projecting returns of between five and seven per cent for loans taken out in the UK in the first half of 2019 – the best projected return since 2015, for which it projects 6.4 per cent to seven per cent.
That compares to 4.4 per cent to 5.4 per cent for UK loans granted in 2018.
German loans taken in the year thus far are projected to achieve returns of 5.5 per cent to 7.5 per cent – slightly up from the 5.3 per cent to 7.3 per cent projected for 2018.
Loans taken in the Netherlands in the first half are projected to achieve 6.5 per cent to 8.5 per cent, the highest level it has reported for the market. Dutch loans granted last year are projected to achieve 6.4 per cent to 8.4 per cent.
Meanwhile loans in the US in the first half of the year are expected to yield 5.7 per cent to 7.8 per cent. The 2018 loans are expected to achieve between five per cent and 6.3 per cent.