Studies of Life

Learning by doing.

Bondora Default Rate: 5.4 to 9% in July 2014

13 July 2014 by Jim

Since this post was published, I have found a way to increase the annual return of my Bondora portfolio with little work. Check it out.

Update January 2015: I’ve posted an update on how reliable the payments have been for all of 2014.

Here’s the historic default rate on Bondora. As you can see it is still creeping up, which is what is to be expected because the service is still in its early stages and experiencing strong growth, especially since new markets have recently been added. New markets will probably continue to be added and the natural growth and stabilisation of all statistics at their true levels can only be expected once the market stabilises.

Bondora default rate

 

In the chart below you can see how the loan volume has dramatically risen since the start of 2013. The growth seems to slow down, which is a good thing because it shows Bondora survived the initial explosive growth phase. They keep tweaking their loan approval process, too, which shows that they are really trying to keep the service going and improving it.

Bondora Loan Volume

In the weekly update e-mail of August 6, the default rates are indicated as follows.

Portfolio risk and return
Weighted average interest rate
(JULY 2014)
Probability of
default,
seasoned loans
(as of 05.08.14)
Recovery rate,
1 year**
Estimated
net return
Estonia 31.0% 5.4% 27% 25%
Finland 32.4% 9.0% 27% 23%
Spain 32.8% 8.3% 27% 24%
Slovakia 29.3% 9.0%* 27% 20%
 *Please note that there is not enough data to calculate the probability of default for Slovakian loans as there have been no defaults till date, therefore we took the highest of all markets.**The recovery rate is calculated based on the loans, which defaulted in 2013 and have had on average 12 months to recover.

As you can see that the default rate varies wildly among the different countries and, in the case of Slovakia, cannot be calculated yet. Overall the rates will stabilise over time. As already indicated, however, even the defaulted loans in each country have 1 year recovery rates of 27%, which means a third of all defaulted loans are paid back within 12 months of defaulting.

Bondora Actual Payments vs Planned

Above is a chart of the actual payments compared to planned payments in my own account. As you can see, on average, around 93% of principal and 75% of interest actually gets repaid. This works out perfectly: if the average interest rate of all loans on Bondora is about 30% (as you can see in the table above) and only 75% of this is actually paid (due to loan defaults and payment problems), you arrive at 22.5% actual net ROI. This is precisely what I am seeing in my own account. My current net ROI is 20.8%, so this adds up.

Now mind you, this is my own personal experience. The official default rate of all loans is between 5 and 10%. The 25% missing payments are missing interest payments, not entirely defaulted loans. I suppose if a borrower repays only part of the amount due, Bondora allocates the funds first to repay the principal, and only if there’s something left after that, to the interest. It only makes a difference for statistics, as the chart above, but not for the overall ROI.

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