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15 Jun 2020
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2 minute read

Provision Fund Update: June 2020

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

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.

Conclusions

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.

The information contained in this blog is accurate only at the date of publication. Expected losses and the performance of the Plenti Lending Platform loan book cannot be known with certainty and expectations are subject to change. Lender rates may assume your investment is protected by the Provision Fund in the event of any borrower late payment or default, however, there is no guarantee nor warranty as to any protection from the Provision Fund. Fees apply. Capital at risk. See the PDS and SPDS for details.

This information should not be taken as financial product advice and has been prepared as general information only without consideration of an individual’s particular investment objectives, financial circumstances or needs. Consider the Product Disclosure Statement (PDS) and Target Market Determination (TMD) available on our website to decide if this product is right for you. 

All figures stated represent the Plenti Lending Platform (ARSN 169 500 449) only unless stated otherwise.

The availability of the Early Access Transfer Feature is at Plenti's discretion and is subject to the terms and conditions set out in the PDS.

Issued by Plenti RE Limited ABN 57 166 646 635 AFSL 449176. Capital at risk. Past performance is not a reliable indicator of future performance. 

Important information*

This information does not constitute financial advice and you should consider whether it is appropriate to your circumstances before you act in reliance on it. Any opinions, forecasts or recommendations reflect the judgement and assumptions of Plenti as at the date of publication and may later change without notice.

Acknowledgement of Country

Plenti respects and honours Aboriginal and Torres Strait Islander Elders past, present and future. We acknowledge the stories, traditions and living cultures of Aboriginal and Torres Strait Islander peoples on this land and commit to building a brighter future together.

We recognise the Gadigal people of the Eora Nation, who are the traditional custodians of the land on which Plenti’s Sydney office stands, and the Kaurna people as the traditional owners of the Country where our Adelaide team is located.