Lending Works resumes lending but negative interest rates continue
Lending Works has resumed new lending but will continue with negative interest rates, although these will ease from February.
The peer-to-peer consumer lending platform resumed new lending at the start of January 2021 with tightened creditworthiness and affordability criteria.
This followed the platform implementing a 90-day normalisation period in April, that paused all new lending. The normalisation period was extended in July and then again at the start of October.
Lending Works said that a period of negative interest rates is still required, but their severity will ease from February onwards.
The platform said the negative interest rates are still required for two of the annual cohorts, 2017 and 2018, and it will continue to conduct and publish its analysis on this every quarter.
Lending Works introduced a period of negative interest rates at the end of October, so that it can channel more money into its provision fund to mitigate anticipated higher credit losses.
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“We will continue to closely monitor the portfolio performance as we recognise that an increased number of our loan customers may fall into financial distress, particularly when the government-backed support schemes come to an end,” Lending Works said in a credit update on its website.
Lending Works said that both expected annual returns and expected annual loss rates have remained relatively stable in the fourth quarter compared to the third.
Overall expected losses on the active portfolio remained at 4.4 per cent in the fourth quarter.
But the platform added that it expects a rise in loss rates in the short and medium term as some customers will fall into financial distress when both their payment deferral and the government-backed lending schemes end.
Average returns on past cohorts, from 2014 to 2019, have reduced from 4.2 per cent to 4.1 per cent per annum for growth investments and remained at 3.6 per cent per annum for flexible investments.
Meanwhile, the 2020 cohort’s average returns have dropped from 3.6 per cent to 3.1 per cent per annum for growth investment and from 2.6 per cent to 2.1 per cent per annum for flexible investments.
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Lending Works said that at the end of 2020, approximately 85 per cent of its customers exiting their payment deferral period had resumed their regular monthly payments, which is in line with the industry average.
The platform added that about one per cent of its loanbook is still on a payment deferral so there remains some uncertainty on those customers’ ability to resume their regular monthly payments.