Lending Works Shares Latest Credit Risk Performance Update

The team at Lending Works recently shared their Q1 2022 performance update on their stats page, and they also released their Outcome Statement for 2021.

During Q1 2022, Lending Works claims that it focused on “understanding the impact of cost-of-living challenges on [their] active loan customers and how [they] can support those who may see their financial circumstances being impacted.”

Both expected annual returns and expected annual loss rates “have remained stable compared to our Q4 2021 update.”

Lending Works is also pleased to inform you that “the interest rate diversion to the Shield will be reduced for the 2019 cohort.” But it will continue “to be applied to 2018 and earlier cohorts.”

The 2020 and 2021 cohorts “will continue to pay the target interest rate,” the update confirmed.

Expected annual returns

Both expected annual returns and expected annual loss rates “have remained stable compared to [their] Q4 2021 update.”

As noted in a blog post, expected annual losses have been “updated to reflect the most recent portfolio performance and the results of [their] stress testing.”

Lending Works said they will “continue to understand the impact of the cost-of-living challenges on the economy, UK consumers and our active loan customers.”

As noted in the update:

“Overall expected annual losses on the active portfolio remained relatively stable at 4.1% in Q1 2021, compared to approximately 4% in Q4 2021. However, we anticipate a potential further increase in loss rates in the short-medium term. We expect some of our loan customers to fall into financial distress as the cost-of-living increases, so we will closely monitor this.”

Expected annual returns have “remained relatively stable and broadly aligned with the Q4 2021 performance update.”

As mentioned in the blog post, average returns “on past cohorts (2014-2019) are 4.4% p.a. for Growth investments and 3.8% p.a. for Flexible.”

The 2020 and 2021 cohorts’ average returns “are 2.6% p.a. and 4.5% p.a. for Growth and 1.9% and 4.0%p.a. for Flexible, respectively, which are stable compared to the Q4 2021 performance update.”

As noted in the report from Lending Works:

“We are pleased to inform you that the interest rate diversion to the Shield will be reduced for the 2019 cohort. However, it will continue to be applied to 2018 and earlier cohorts. The 2020 and 2021 cohorts will continue to pay the target interest rate.”

They added:

“Whilst 2017-2020 cohorts have decreased compared to their annual target return; returns remain positive at approximately 3.1% p.a. on average.”

The Lending Works Shield

The future income required to cover expected losses “decreased to £1.5m, compared to £2.2m in Q4 2021.”

The £1.5m “reflects the most recent performance of the portfolio and their latest assessment of the expected credit losses in their portfolio as it matures.”

The Shield cash balance has “remained relatively stable at £1.1m in Q1 2022.” Shield cash utilization continues “to be maximized to pay arrears and default to retail investors.”

Lending Works concluded that their next statistics page update “will be in July 2022, and it will continue to be focused on the impact of cost-of-living could have on the Lending Works’ portfolio performance.”

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