Lending Works has revealed that its expected annual losses and returns have remained stable while negative rates are still required in two of its loan cohorts.
In its third quarter credit performance update, the peer-to-peer lending platform said that the overall expected annual loss has remained relatively stable at approximately 4.3 per cent. But it predicted that some of its existing loan customers may enter into financial distress during the fourth quarter as the government support schemes end.
Lending Works said that expected annual returns have remained relatively stable and are broadly in line with the prediction from its previous performance update.
The platform said the average expected annual return on older cohorts (2014-2019) has remained stable at approximately 4.3 per cent per annum for growth investments and 3.7 per cent per annum for flexible.
The 2020 and 2021 cohorts’ average returns are 2.7 per cent and 4.5 per cent per annum for growth and 1.9 per cent and four per cent per annum for flexible, respectively, which is also broadly in line with the forecast from the second quarter update.
Lending Works said that negative interest rates are still required for the 2017 and 2018 cohorts to ensure that the platform’s shield appropriately covers expected unrealised bad debt in the active portfolio.
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The future income required to cover expected losses dropped from £3.6m in the second quarter to £3.4m in the third, which reflects the platform’s most recent performance of the portfolio and the latest assessment of the expected credit losses as a result of the pandemic.
The shield cash balance fell from £0.74m in the second quarter to £0.63m in the third after shield utilisation was mainly driven by arrears and default payments to retail investors on older cohorts loans.
Lending Works added that its collections and recoveries capabilities have been strengthened over the past 18 months to help minimise the impact of the pandemic on investor returns.
“Both expected annual returns and expected annual loss rates have remained relatively stable compared to our second quarter 2021 update,” Lending Works said in a blog on its website.
“Expected annual losses have been updated to reflect the most recent portfolio performance as we continue to closely monitor the full impact of Covid-19 on our loan customers, particularly as the coronavirus job retention scheme comes to an end.
“We believe prudence continues to be sensible as the government support programs are wound up. That said, if the measures we have taken are overly prudent, the lender rate adjustment mechanism will be used to increase expected annual returns received by investors over the lifetime of the loans in their portfolio.”
Separately, 4thWay has revealed low ratings by Lending Works lenders this year.
An analysis found there were 34 Trustpilot reviews written in 2021 by its customers who have lent money and out of these 31 lenders gave the platform one star. The average rating by Lending Works investors has been 1.2 out of five so far this year.