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A Very Bad Trend in Bondora’s Platform Statistics

16 September 2015 by Jim

I’ve been looking through the forums on Bondora, and a post from carlos caught my attention.

What is it about?

Basically, the platform statistics show that the amount of money lost in defaulted (=more than 60 days overdue) loans is approaching the total amount of interest paid out, as can be seen here:

If this is true, and we assume that defaulted loans barely recover any money, then that means that on average, most investors on Bondora are not making a lot of money.

I personally treat my defaulted loans like write-offs that I will never recover. At most, I would expect 10-20% of the defaulted amount to be recovered sometime in the far future.

If more money is lost in defaulted loans than is earned in interest, which could soon be the case looking at these statistics, that would mean that on average people are losing money on Bondora. It might still be possible to earn money if you have a particular subset of well-performing loans, but the odds are stacked against you.

Even if I am wrong and interest will forever outstrip the defaulted loans, so that there is a net gain on the platform, the net difference is currently about 1 million out of 8, which means 7/8ths, or about 85% of the interest return on Bondora is lost due to defaulted loans. That can hardly be called efficient. As was pointed out on the forums, most investors in EU countries have to pay taxes on the interest they earn, but they cannot deduct the defaulted loans from their earnings, which reduces the return even further.

What is the conclusion?

Bondora’s borrower selection is not good enough to ensure good average returns. The defaults are piling up. That might explain why they are constantly changing the platform, because they know that it is unsustainable as it is now, so they try to improve it (hopefully) or cover it up (I hope not) by changing things so quickly that it is difficult to kee up.

I personally will continue withdrawing what I can from my Bondora account because it doesn’t seem to be a sustainable investing option. Other P2P lending sites like Twino or Prêt d’Union offer lower returns (5-10%) but they seem to be more sustainable for now.

Bondora’s initial 20% return claim was wonderful. But it might be good to remember that if something sounds like it is too good to be true, it probably is.

What is your opinion on Bondora’s evolution?
The statistics shown in the diagram are from this page.

7 comments | Categories: bondora, Investing | Tags: , ,

Comments (7)

  1. Hello!

    One common mistake investors make investing in P2P lending is that they tend to forget the essence of P2P lending. This is time consuming investment opportunity in sense of ‘getting paid’. While we can take profit from stocks rather quickly, the same is not applicable with P2P lending because of defaults and late recoveries. And recoveries do happen, but usually after one year since defaulting.

    Bondora has implemented Bondora Rating, which is telling that there are borrowers on the market who has different risk level. HR group is the most radioactive – it is common that those loans default in much greater amount than AA loans. (https://www.bondora.ee/en/invest/statistics/loans)
    And if we are looking for example C Rating, we can see that approximately 10m€ has been issued, 1,5m€ interest gained and 0,5m€ have defaulted. Meanwhile HR Rating stands respecitvely 12m€, 2m€ and 4m€. It isn’t correct to assume that the overall portfolio is as bad as the numbers are telling us.

    Also one thing to remember is that we should focus on some certain period of time and see the profits from there, for example Q1 2013. My portfolio has made profit in that time period, that means my invested amount < (returned principal + gained interest + gained penalties). Also there are still loans that are paying and I can see recoveries from defaulted loans. There is no point to look back to Q3 2014 and make any conclusions – defaults are still happening from that period and recoveries are not yet in place.

    • You’re right – there are differences and some risk classes are better performing than others. But the numbers in the general statistics do show the general current status of the whole platform.

      In 2013 the overall platform did better because the loans were mainly from Estonia. But since then, a lot has changed, and Bondora’s strategy is shifting constantly. The loans they issue in 2015 are not the same as those from 2013.

      Regarding increasing recoveries of defaulted loans, I hope you’re right and they will increase in the future. If they do I’ll post about it – I have a lot of defaulted loans myself because I invested heavily in bad-quality loans before the new risk ratings were introduced and got many loans that are now considered HR.

  2. >It isn’t correct to assume that the overall portfolio is as bad as the numbers are telling us.

    I’d say that previous scoring model was full of mistakes and investors got stuck with decreasing bond quality. New scoring model looks like big improvement but its too early to say if it will save us in the future…

    I read stats in following way: average investor in Bondora has pretty low chance to be in surplus after charging off defaults.

    Also second market stats show us average IRR 35% which becomes 8% after adjusting for default rate 27%. Not any close to Bondora official figures. See http://bondpicking.com

    There are now increased costs for recovery (DCAs – see bondora blog) – another uncertainty and reason not to count with bad debt collection…

  3. Hello Tauri, when you think my numbers are incorrect and harmless, why do you think they have removed it now?

    https://www.bondora.com/en/invest/statistics

    • Can’t share any specific thoughts about it yet. Soon!

      Still I would like to answer to you question in a broader sense. There wasn’t nothing wrong about numbers. Numbers itself were OK and hopefully accurate. But I didn’t agree the methodology behind the calculations you did. If a 10k loan can default within 4 months since issuing date then how long time does it take to earn 10k€ worth of interest? So comparison apples to apples is if we measure the earnings and losses up to this day. And in that sense much more money is flowing in than defaulted loans can produce losses.

  4. Yes I understand you fully. We are talking future and uncertainty here. Of course we can’t say that any particular model is right, but for me my methodology is closest to answering this question:

    “If I’m gonna exit Bondora position immediately – what will I take home?”

    I’ll take all received interest so basically free cash, sell outstanding loans and with some miracle also overdue loans, what will be missing? Only principal I’ve invested into defaulted loans.

  5. Was looking into investing with Bondora. However, after this article I am not so sure anymore. I guess I need to do more research. Thanks for your article, though!

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