Updates27 July 20203 minute read

Provision Fund Update: July 2020

An update on credit performance and provision fund coverage ratio calculations for July

During this Covid-19 period, we have kept investors up to date with our credit performance and our expectations regarding the Provision Fund’s ability to continue to protect investors from any credit losses over time.

We are pleased that over the last month the impact of Covid-19 on the Australian economy and our loan book has been more muted than anticipated and that the outlook continues to improve.

Impacts on loan book to date

Borrower arrears rates continue to be consistent with this time last year and continue to show no discernible signs of impact from Covid-19.

The number of borrowers entering into financial hardship remains elevated, although new hardship applications have returned to volumes similar to pre-Covid-19 levels. Currently only 3.2% of RateSetter Lending Platform borrowers have entered into financial hardship arrangements, which is below our estimate of a month ago, and we understand is less than half the level being experienced by Australia’s largest consumer lenders including the big four banks.

Changes to expected credit losses

The peak level of unemployment and the duration of elevated unemployment are key inputs into our expected credit loss models. Over the last month expectations of peak unemployment reported by analysts at the Big Four banks declined from an average of ~9.75%. to ~8.53%.

In light of revised peak unemployment expectations, we have updated our credit models and we now expect $12.85 million of net losses on RateSetter Lending Platform loans outstanding.

Provision Fund coverage ratio

As at 15 June 2020, the Provision Fund buffer is $17.6 million. Accordingly, the Provision Fund coverage ratio is now ~137% of expected credit losses.

We are pleased that despite the significant economic shock to the economy caused by Covid-19, the Provision Fund continues to compensate investors for all borrower late payments and defaults and the Provision Fund coverage ratio remains above 100%. We note that the Provision Fund is not an insurance product nor a guarantee and you should read the PDS for more information about the Provision Fund.


We continue to believe that the RateSetter Lending Platform is well-positioned to absorb the economic impacts of Covid-19, and that our investors will continue to benefit from attractive returns, whilst other asset classes suffer significant changes in both prices and returns.

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Written bySimon Cordell
Simon joined Plenti in April 2016, having headed up Consumer Risk and Small Business Risk at American Express. His team considers all aspects of the credit lifecycle.