We’ve asked the lending companies specific questions regarding their borrowers’ ability to make repayments, ongoing restrictions that affect their business, any changes in strategy to adapt to the current market situation, as well as their business outlook for the upcoming months.
We’ll regularly update this blog with new announcements over the next 2-3 weeks, so stay tuned and make sure to check back once in a while.
DelfinGroup’s follow-up announcement for investors
“On 20 March 2020, we at DelfinGroup provided information to investors regarding the company’s actions in relation to the state declared an emergency situation in Latvia on 12 March 2020. The company’s initial focus was on securing cash reserves and reviewing its cost structure. In addition, a stricter assessment of customers’ solvency was introduced. The state of emergency was lifted on 10 June 2020.
During the state of emergency with the measures introduced, the lowest monthly issuance level was in April (€ 2.1 million which is 49% lower than in February 2020). With the lifting of emergency measures on 10 June 2020, the demand for DelfinGroup loans had increased significantly. Highest ever monthly issuance level, since the foundation of the company, was reached in August 2020 – issuing € 5 million, which is 14% higher than in August 2019. During the state of emergency and now, DelfinGroup has been actively working to introduce product improvements for providing better customer service.
The following issuance increase in 3rd quarter of 2020 compared with 2nd quarter of 2020 was achieved:
|Change Q3 vs Q2 in %|
|Total Pawn loans issued||5.1||3.7||5.2||+40.5%|
|Total Consumer loans issued||6.5||4.8||9.4||+95.8%|
|Total issued amount||11.5||8.5||14.6||+71.8%|
Based on the Group’s conservative credit policy and stable and reliable customer base, the non-performing loan ratio has stayed relatively low, showing that currently there are no notable changes in portfolio quality. There is a slight increase in NPL (non-performing loans) at the end of 1st quarter 2020, following recovery in the end of upcoming quarters:
Non-performing loan ratio:
|NPL* in %|
*Non-performing loan ratio calculated as 90+ day delay portfolio to consumer loan portfolio
The Parliament of the Republic of Latvia has adopted the Law on the Suppression of Consequences of the Spread of COVID-19 Infection in which the limits for late payment interest on default of the performance have been set for the period starting 1 April 2020 to 1 September 2020 (https://likumi.lv/ta/en/en/id/315287). As late payment interest in 2019 was only 4% of Group’s total income, this regulation has no significant effect on the Group’s income statement. There haven’t been any other decisions made by the Government or regulator with a direct impact to DelfinGroup’s business.
With regard to the total income, the Group’s income has steadily increased over the period of three quarters of 2020, with a lower income in the second quarter:
|Change Q3 vs Q2 in %|
Total pawn and consumer income*
*Total income generated for pawn and consumer loans
During these difficult conditions of 2020, DelfinGroup has successfully attracted bond financing. In the 2nd quarter of 2020, the company attracted additional financing in the amount of € 0.98 million for the bonds (ISIN LV0000802379), issued on 15 November 2019, which have been issued as of 31 July 2020 in the full amount of € 5 million. As of 11 August 2020, these bonds have been included in the Nasdaq Riga Baltic First North Bond List, thus three DelfinGroup bonds have been included for trading on Nasdaq Riga stock exchange.
Additionally, on 23 September 2020, DelfinGroup registered new private placement unsecured notes issued in the amount of € 3,5 million, and on 30 September 2020, the subscription was successfully completed with the demand exceeding the supply of securities for the issue. The issue arranger was Signet Bank and issue was subscribed by new and existing private and institutional investors.
We understand that the situation related to COVID-19 is still unpredictable and we are closely monitoring the development of it. We are ready to take all the necessary actions regarding the safety measures in our branches and to ensure the health of our employees.”
Mikrokapital: “We have fully restored offline work and reached the pre-crisis level on loans issuing and debt collection”
Mikro Kapital has been operating on the Mintos marketplace since April 2019, offering investment in business loans issued in the Russian Federation, Romania, Moldova and Belarus.
Some time ago, we caught up with the CEO of Mikro Kapital, Svetlana Chubakova, to learn more about the company’s current position amidst pandemic and its vision for the future.
1. Has the global pandemic impacted Mikro Kapital’s business? Which changes or actions did you make during this time?
“Yes of course. Mikro Kapital is a part of the Russian economy and financial sector, and everything that happens on the market affects our company. Everything related to our clients, including the risks that have such a global impact on industries and customer segments, affects Mikro Kapital. During the pandemic we saw how markets, shopping centers and even some cities were closed, how entire industries were suspended. During the period of strict self-isolation from April to May, we recorded a decrease in demand for new loans, but at the same time, we saw an increase of requests from clients who faced difficulties in repaying previously assumed obligations, but aimed to solve their difficulties and save partnership relations with us. We were acting in accordance with the law and providing clients with credit holidays. For those of them whose profile did not fit the requirements of the law on credit holidays, we promptly developed a product of simplified restructuring and gave them an opportunity to go through these difficulties smoothly.”
2. How do you see the remaining months of 2020 for Mikro Kapital business? Do you foresee any improvements or change in borrowers’ behavior?
“Everything depends on the epidemiological situation – will we see a second wave of the epidemic, and how severe will be the restrictive measures that may follow? We expect that some surge in incidence may occur before the end of the year, but hope that the government will not impose global restrictions. We have an optimistic view and believe that the autumn-winter season awaits our clients and the demand for loans will continue. According to our outlook, Mikro Kapital business will not suffer until the end of 2020. Even during the most peak and dramatic months in terms of restrictive measures – April, May and June – we did not suspend our activities and issued new loans to our clients. Analyzing the repayment rate, we may note that the loans issued during this period are not in default, which means that the client profile we have chosen has successfully coped with the challenges of the new reality. And most likely, they will successfully go through new barriers. And we will support them.”
3. Can you please comment on the current quality of loans offered for investing on Mintos? We see contradicting opinions, yet many banks are reporting losses due to borrowers’ lack of repayments and weakened debt collections process due to pandemic related restrictions. Could the situation be any different for you?
“From March to May, the amount of collected debts was less than usual and this is mostly related to the restrictive measures – enforcement proceedings, courts, arbitrations were suspended, social contacts were also paused by the self-isolation regime. Since June, we have fully restored offline work and reached the pre-crisis level on loans issuing and debt collection. Summing up the results of the first half-year, we may note that now we even have exceeded the pre-crisis level in both directions. We see no negative trend and the quality of our portfolio has not deteriorated. We have made many efforts to maintain the situation and the quality of the portfolio, to support new issues and the set rate of collection. Partially, we may see such a positive trend due to the client profile we work with. It was our clients who found internal and external resources in order to cope with the situation and get out of it with the least losses.”
4. At the time of the last interview with Mikro Kapital in August last year, you mentioned the company is testing new niche clients such as potential customers in the e-commerce sector. Has that project developed and do you plan to come back to it once global uncertainty over the finance market lessens?
“Yes, indeed, we worked on the e-commerce segment in terms of introducing a new niche offer, and in general, the results of the pilot testing were quite interesting. At the same time, working with this segment and experience with the coronavirus push us to digitize all processes and work online. We understand that, on one hand, this format is convenient for the client – they can get financing without leaving home, on the other hand, it is beneficial for us as well – we reduce the cost of issuing. This year we launched a scoring product that allows clients to get a loan of up to 500 thousand rubles very quickly and easily – for such applications, we receive all information about the borrower from databases, and the client receives a decision within 30 minutes. In addition, in the near future we are launching a project related to financing of government contracts, where the entire client path will be digitized – work is carried out in personal accounts through electronic document management and electronic digital signatures of all participants.”
5. Please share more on the service you provide for your clients.
“Our client is always an entrepreneur who is engaged in business in any format. In other words, all entrepreneurs could be our potential clients, and we are ready to finance any of their tasks – from business development, such as opening of a new business line, the expansion of the current business, territorial expansion or personal needs if he wants to buy a car or real estate for himself. However, we always work only with entrepreneurs.
The client always has a choice in which format they receive our support – it could be a classic loan, leasing and even factoring – in the Mikro Kapital holding we have any kind of these services. Because of the pandemic, we have not seen a significant change in client’s needs. Of course, we may note an increase of demand for financing of cash gaps and replenish working capital, but we did not record any huge changes in the demand for loans in general.”
6. Could you describe who your clients are? Volumes of loans, areas of business that clients take the loans for, the geography of clients (capital or rural areas), age?
“Mikro Kapital business is represented in 47 cities of Russia, with a third of its offices in the Caucasus. We work in very small towns, medium-sized and in cities with over a million people. We work with clients in retail and wholesale trade, manufacturing, as well as those who provide services or are involved in farming and agriculture. Of course, there is a dependence on the region and the dominant industry in the portfolio, for example, agriculture traditionally prevails in the southern and Caucasus regions. Most of our clients are entrepreneurs aged 41 to 60, the second place is taken by the age group of 25-40, plus more young entrepreneurs who are also our borrowers.
In general, the demand for financing does not depend on the specifics of the business. If we are talking about agriculture, then the money goes into investments for the sowing campaign, if this is the trade sector, then for the purchase of goods before the season, if this is production, then financing is needed to update the equipment park or purchase vehicles.”
7. Is there anything that has surprised you during the last six months of work under the pandemic conditions? The behavior of clients/ regulators or anything else?
“It was a pleasant surprise for us to discover that our clients were able to cope with a rather serious challenge of pandemic and restrictions. Some of them used their savings, and these facts confirm that our clients were able to predict possible risks. Some of them, following the trends and situation, rebuilt business models and launched online sales, organized the delivery of their goods and implemented additional services. Entrepreneurs have made every possible effort not to lose their business, minimize losses and have found a way to make money in this new reality. We are pleased that the clients whom we have trusted and provided credit holidays show a good and stable statistic of repayments. Even after the end of special restructured schedules, our clients fulfill their obligations and make all the payments on time.”
HipoCredit Covid-19 update
How do you view the current situation in your markets with borrowers’ ability to make repayments (6 months into global crisis)?
“In March, when the global pandemic started, we were concerned and started focusing on the debtor’s control and possible solutions for those who might get into difficulties in making payments. Yet clients continued to pay within the previous quality. The solvency situation of Hipocredit customers has not deteriorated, and the quality of the portfolio has remained the same as you can see in the following table.”
“We accepted credit vacations for clients who had lost jobs or had a major decrease in their household income. But there were only 27 such clients and they all returned to the schedule after 3 months of the credit vacation period. The Covid-19 situation shows that we have issued loans very responsibly, carefully assessing the client’s solvency and the ability to repay the loan.”
Are there moratoriums or movement restrictions still in place or other considerations related to pandemic/global crisis that has impacted or might impact your business until the end of 2020?
“There are no moratoriums in place and the government reacts to new Covid-19 cases and issues restrictions to control the spread of the virus. Our team has gained experience in the first Covid-19 wave and we are ready for the second one. We can work both from the office and home, as we have all the necessary equipment and programs working. We are flexible, so our job doesn’t stop and we can adjust to any new regulations. 95% of our job with the client is done online. Agreements are signed at the notary office, and they are working as usual.”
Have you made any additional/new changes in your business as a means of adaptation to the new market conditions?
“We started to evaluate the potential of the client’s workplace and position more strictly as knowing the most affected industries in the market, as well as avoiding low liquidity properties and giving out even safer LTV’s. We have a very strong team, which is constant for 4 years already, and everyone’s salaries and bonuses have stayed the same despite the global crisis.”
Please share your business outlook for the rest of the 2020 and 2021 Q1.
“Even though the first months of the global pandemic were lower in issuance, Hipocredit had good results during these 9 months. We have already issued € 2.4 million in 2020 that is equal to the total issued volume of 2019. So we are growing and planning to increase issuance in 2021.”
Finclusion Group Covid-19 Update
“Following Kenya’s example earlier in the quarter, in September 2020 we saw South Africa return to level 1 of a lockdown that was in place since March this year. While this means a substantial reduction in the level of restrictions in place, there is still some regulation that will restrict a complete return to economic normality, specifically a limited approach to incoming international travel – a key to our economy over the seasonal summer months.
The emergence from the more severe levels of lockdown has impacted sales to begin returning to the pre-lockdown levels. Whilst we have tightened credit criteria and adapted our credit scoring models to cater for the changes we have seen in consumer credit data, it has also allowed us to extend loan tenors on both our online and deduction at source platforms to selected low-risk customers.
Collections have remained in a tight range in line with pre-lockdown levels. While the industry saw a reduction in the successful collection during the first months of lockdown, we have largely managed to maintain a strong level of repayments from consumers.
We did not offer payment holidays, but rather restructured instalments on request, and introduced a loyalty scheme for those customers who were able to meet their repayment commitments. We also introduced additional digital and non-face-to-face payment options, encouraging customers to pay as-and-when they were able to.
While there is a muted outlook for the longer term, larger value lending market in South Africa, the niche that we occupy as an overdraft-type solution for under-banked customers, on much shorter tenors continues to gather traction and is a relatively small slice of the overall lending market. Coupled with our alternative approach to credit assessments, we believe this places our business in a strong position as the consumer market begins to recover.
We have also maintained our collections in Kenya and built up a cash buffer that we can deploy into the economy as we grow. We have seen significant competition pull out of Kenya, as digital lenders can no longer access the credit bureaus. We believe this will offer us a good window for growth. In general, we believe the rest of 2020 will continue to be a period of slow growth – putting a solid base for a strong 2021. Even if a renewed outbreak were to take place, we believe our markets would be significantly better prepared.
Regarding the financial update, we incurred c. $ 0.8 million of foreign exchange losses following the re-rating of the African currencies as a result of the Covid-19 pandemic, but we have maintained a positive year-to-date bottom line as of 30 September 2020. As of 30 September 2020, Finclusion Group continues to benefit from a leverage ratio of below 1.0x and a strong equity balance of c. $ 11 million. Our company’s net loan portfolio has remained relatively flat at c. $ 14 million but we expect it to grow during the last quarter of 2020. Shortly after the quarter-end, we secured external funding for its South African business of c. $ 0.5 million which we’ll deploy into the loan portfolio together with the current cash reserves. We also hold cash reserves of c. $ 3 million which we will use to gradually grow the loan book.”
Wowwo: “We have had zero loss due to Covid and we do not anticipate any losses going forward either”
“After a bright start to 2020, the introduction of a national shut-down in Turkey starting in March firmly put the brakes onto our sales. During March and April sales were negligible as people were not able to leave their homes and also they were apprehensive as to what the future had in store for them. However, as the shut-down ended in June, it became apparent that Wowwo had benefited from the market situation after the impact of Covid-19.
Since car production had stopped during the worldwide shut-downs, the supply of new cars in Turkey had dried up. People were hesitant to use public transport and consequently, the demand for used-cars increased drastically. Everyone wanted to buy a car, and due to the lack of new cars in the market, everyone was buying second-hand cars. Also, the prices of all vehicles were also increasing on a daily basis as limited supply and increased demand pushed up the prices of used cars by 30%.
Sales and revenues continue to increase since June.
Collections stagnated during the shut-down. People were afraid to part with their money. However, subsequently, collections have returned to normal and improved somewhat as our customers are fearful of losing their vehicle, resulting in them making sure that their payment plans are stringently adhered to. We are negotiating and buying back the vehicles of those customers unable to meet their payments due to their personal circumstances brought upon them by Covid. These vehicles are then resold to new customers. We do not give prolongations, extensions or moratoriums, so all payments plans continue as normal. We have had zero loss due to Covid and we do not anticipate any losses going forward either.
There are no moratoriums or restrictions still in place and there is unlikely to be any in the future as the Turkish government aims to keep the economy moving.
Our business and market conditions are reviewed on a continual basis and we are able to adapt quickly to as required. However, we have not made, or currently plan to make, any changes to our business as we do not feel the need to at the moment. Business is strong and continues as normal.
From reports, new cars will only become available in a limited number towards the end of the current year. Therefore, we anticipate sales and revenues to continue strongly until the end of the year, as well as the first quarter of 2021.”
E-Cash (Melivesa Holding) update
“Dear Mintos Investors and Partners,
Hereby I would like to provide again updated information about the recent COVID-19 situation and the way how Melivesa Holding and its wholly-owned subsidiary E-Cash are performing.
The COVID-19 pandemic has made a serious impact on the overall portfolio performance. The payment statistics and hence the portfolio structure in terms of share of current/overdue loans has worsened compared to the pre-COVID era: the share of the current part of the portfolio in total days past due (DPD) 0-30 portfolio went down to 78% on average during the March-May period and the provision level has increased up to 29% on average.
However, we are witnessing significant improvements in the risk structure starting from June as payments have restored almost at the same level as pre-COVID, hence we have significant improvements in portfolio quality and performance: the share of the current part of the portfolio in total DPD 0-30 portfolio restored up to 91% on average during the June-September period and the provision level has decreased down to 14% on average for the same period.
As for the overall situation on the market, the moratorium on fees on delayed payments is still in place and will continue until the end of the year (31/12/20). You can find links to the government’s decision here and here.
As a means of adaptation to the new market conditions, we have made some adjustments to our business:
– We defined accruals of interest and fine/penalties in accordance with applicable law;
– We made the assessment of the client’s solvency stricter;
– We organized the possibility of remote work.
We assume that stricter quarantine restrictions will not be introduced, as the market has already adjusted to new circumstances. For 2020 Q4 and 2021 Q1, we expect moderate growth, portfolio quality improvement (below the provision level of 14%) and revenue line increase.”
With kind regards,
CEO of Melivesa Holding LTD
Mogo Covid-19 update
“Being 6 months into the global pandemic, we see that the situation has stabilised across all our markets. Most critical were the months of April and May when due to uncertainty about the future and government actions (curfews, lockdowns, payment moratoriums) our customers’ payment discipline noticeably worsened. However, as the initial „shock“ has passed, we are now able to see that customers’ ability to pay and willingness to repay the loans has not been affected significantly.
Mogo’s selected strategy to work with clients long before going into the hard collection and to offer temporary debt relief so that customers could be paying temporarily decreased or postponed monthly payments has worked out very well and has helped to recover big part of the clients who went into the delay during the peak of pandemic (April, May).
In April, the company’s cash collection had dropped more than 31% compared to January (from € 14.3 million to € 9.8 million collected). Since then, cash collection has been steadily recovering and throughout July – September it was at the pre-covid levels. That was achieved on a lower net portfolio which has decreased by ~10% from the beginning of the year, due to generally lower issuances. The visual representation of the above can be seen in the graph below.
Same as cash collection, Mogo’s portfolio quality is improving month to month starting already May. We are still working to recover clients which have gone into the delay or requested payment holidays or extensions during March-May periods, but the situation is improving month to month. As of the end of August, only 4% of the total portfolio was still using temporarily debt relief program. This is a noticeable improvement from the lowest month in May when around 10% of the portfolio was using such. It is expected that the remaining clients will be brought to regularly scheduled payments during the next couple of months.
Same positive tendencies can be noticed in the 30+ days past due buckets. During the last 3 months, this bucket has decreased by 9.3% and is approaching pre-Covid level. Clients who are not able to recover and get back to regular monthly payments are transferred to the debt collection team, which starts the car repossession process and subsequently also the car sales process. During September, the cumulative cash amount recovered from repossessed car sales has increased by ~30% in comparison to the regular pre-Covid level and had reached € 1.2 million. This volume is expected to grow until the end of the year to fully absorb the Covid-19 caused increase in client delinquencies.
Most of the Covid-19 restrictions and moratoriums are lifted across all Mogo markets. It is hard to predict what and when might be the new restrictions put in place due to second Covid-19 wave, but Mogo does not expect that it will have a severe effect on clients‘ payment behaviour.
Mogo customers and society, in general, has gotten used to the „new normal“ and there is less panic in the operational markets. Mogo now has a full set of tools, trained team and operational capacity to deal with any possible future challenges.
Since the beginning of the pandemic, we have adjusted and adapted our operations and business plan. We have restructured our head office by optimising regional HUB structure and we have reviewed the cost base in every market. We have also optimised Mogo’s portfolio while exiting some of the markets that were at the early development stages. We are now fully focusing on most profitable developed markets and countries where the return on investment is the highest.
Cash surplus, which has been generated during months of low issuances, was used to optimise Mogo’s debt structure and acquire mature consumer loan companies in Moldova, Albania and North Macedonia. The latter two of which are subject to the regulatory approval. Acquisitions of such developed operations helped us to strengthen Mogo’s revenue and EBITDA generation capacity. It also helps to achieve consolidation of operations and cost optimisation in all three markets since Mogo already had its car loan financing operations there.
In the graph below, you can see the steadily recovering Mogo (vehicle loans) issuances which are expected to continue despite Mogo still being more conservative in its underwriting process.
We have fully adopted our day to day operations to be able to serve all our customers and service our portfolio while mainly working remotely. Mogo is strictly following Covid -19 mitigation recommendations across all its markets and has taken extra steps to make sure that its employees and customers have all the best tools to avoid virus contamination.
For more detailed information and updates on the company‘s results can be found on Mogo’s webpage. We will have our 9 months results published and Mogo earnings call held in mid-November which will also be shared with Mintos community.”
Everest Finanse Covid-19 update
“We share with you, our investors, our plans for the nearest future, to ensure that despite these difficult times for the global market, we are doing well and we are not holding back our ambitious plans.
Although the Polish government has strongly reduced aid for the financial sector, meant to help prevent the negative effects of the pandemic, Everest Finanse S.A. has not reduced the number of jobs or salaries. We did the opposite – we have introduced numerous competitions for our consumer advisers to ensure regular collection of loan installments from customers.
Some Polish loan companies gave up immediately and stopped selling or closed down their operations. We see it as an opportunity for us. Many clients are now looking for an offer, so we have decided to strengthen our advertising activities to make it easier for them to find our company.
Apart from the standard TV campaigns – we stopped the advertising campaign only in April – this year we will launch a new website and a large online advertising campaign.
We have also started the production of a new advertising spot, which we plan to broadcast in January 2021. This is the largest investment in advertising production in the history of our brand. In the spot there will be as many as 8 characters symbolising different groups of our clients – not only will they promote the taking of loans, but (a novelty in the world of Polish loan advertising!) also the repayment of commitments entered into.
We spend money wisely. In our advertising activities, we pay great attention to ROI. That is why we resigned from two solutions tested in recent months: the recommendation program – we conduct actions thanks to which we gain clients at a lower cost than the one generated by the recommendation program – and the “last installment is free of charge” offer – introduced to motivate clients to reliably pay installments. Thanks to the conscientiousness of our advisers and clients visiting according to plan, the latter program proved unnecessary.
We lend very cautiously – we could not foresee the effects of the pandemic, so we drastically reduced the number of loans. Now we know that we can gradually increase them. Since March, we have increased the amount of money we lend twice, but we have not yet lent as much to a new client as before the pandemic was announced.
We are also developing technologically. Additionally, we have introduced several solutions aimed to increase the effectiveness of sales of leads obtained from external partners. This is possible by using bots and the automatisation of several processes on the hotline.
We are working very intensively: since March 2020, we have introduced as many as 5 new non-loan products, including a financial one, to further diversify our income streams. Thanks to our efforts, we managed to maintain the profitability of sales. In the next few weeks, we will be putting out another product diversifying our income even more.
All of this will eliminate the negative impact on the financial results of our company, which was caused by the limited CAP, introduced by Polish regulations related to counteracting the effects of the pandemic, the so-called „Tarcza” (eng. Shield). Another “Shield” imposed an obligation to grant 3-month credit holidays for clients who lost income due to the pandemic. Our experiences have led us to believe that our clients are not interested in postponing the payment of installments. So far, we have noted 4 such motions, 3 of them have already ended. Anyways, granting credit holidays to our clients has no effect on investors – we cover these obligations on behalf of our clients.
And below we present the data that clearly shows that we are handling the crisis and investing in our loans is a safe investment indeed.”
Implementation of the installment collection plan January – September 2020
The number of new loans sold January – September 2020
Cash Credit Covid-19 update
“Since Covid-19 crisis started, our company has managed to keep its values and assets despite the turbulent economic situation and period of uncertainty.
We have proven to react adequately to the force majeure:
– We have never delayed any single payment toward investors;
– We managed to remain profitable despite the crisis – 15% net profit margin from the beginning of the year;
– We keep a strong financial position, securing sustainable liquidity sources and large cash buffers:
– Collection rates have already recovered to pre-Covid levels – collection rate has improved from 92% during the first wave of Covid-19 to 95% in the recent months;
– Being a responsible employer, we managed to keep all our personnel;
– We remain a reliable partner to our customers, shareholders and vendors.
The recovery to the usual business level is going according to our plan. We already managed to bounce back more than 40% of the initial drop in sales and is soon to achieve 90% of its pre-Covid business volumes:
We are in process to realize additional new business lines and will soon announce the launch of the new products.”
DoZarplati Covid-19 update
“In any changing market conditions, the most important skill is the ability to quickly adapt to a new environment. In the field of Microfinance organizations, the demand for loans has increased during the crisis, and we have optimized our scoring models to reduce risks. Thus, while the volumes and growth rates have been maintained, we’ve got a 15% decrease of NPL 60+ from January to May.
The Russian government had publicly stated that a new lockdown is not going to be introduced. At the moment, regional authorities are taking various measures to prevent the epidemic. For example, a mask regime observance, the closure of restaurants, bars and nightclubs from 11 p.m. to 6 a.m. In our company, a part of the employees continues to work remotely. We consider various scenarios of situation development.
Besides the optimization of scoring models and risk strategy, we have launched several new products. One of them is a “Payment decrease” for borrowers. This product, on the one hand, makes our client’s payments lower and more comfortable during the crisis, on the other hand, it raises the overall loan profitability. From the client’s point of view, “Payment decrease” has become an excellent alternative to prolongation, while for the company its profitability is higher. We are going to keep this product after the crisis in the future.
Loan subscription is another unique new product. Now we are testing it for 5% of overall traffic. For the last 5 years, the subscription model earned a good reputation in various business areas. In our concept, we are also satisfied with its test results.
Our current risk assessment model still operates within a negative scenario, which is based on the chance of a second big wave of Covid-19. At the same time, we continue to grow due to new products and increasing demand. We are ready to turn to easier models, which will provide an even greater increase of loan issuance as the situation in the country improves.”
DineritoXtra Covid-19 update
“There is no doubt that the COVID-19 pandemic has caused high losses to many countries, and Mexico is not an exception.
At DineritoXtra, during this time, a lot of work has been done to implement a series of measures focused on safeguarding the safety of our employees and maximizing the potential available to keep the operations at reasonable levels.
At first, the IT infrastructure was strengthened, so that most of our employees could do their work remotely, guaranteeing their safety and health as much as possible.
Secondly, we have been seeking to maximize the risk-adjusted returns for investors, so that the costs of this epidemiological scenario would not be so high for DineritoXtra. A series of strategies were implemented to reduce the impact of the adverse global economic situation.
Among these strategies, we established a minimum operating cash reserve for the period of lockdown equivalent to 3 months of operational expenses, we also repurchased part of the debt on Mintos in order to reduce the financial cost and exposure to funding in foreign currencies, as well as the prepaid of debts in Pesos with the highest interest rates. Similarly, the Aguascalientes, Durango, Veracruz, Torre Pemex and Anzures sales branches were closed in order to reduce operating. On the other hand, we managed to maximize loans underwriting in order to maintain the outstanding portfolio balance at the same levels.
Thanks to our market focus on retirees and government unionized employees payroll guaranteed loans, it was not necessary to provide support of any kind, since borrowers continued receiving the same income through their paycheck. As a result, we were maintaining collection effectiveness at levels higher than 95% throughout the portfolio.
As we can see in chart A, the expected collection did not suffer a significant impact during the months with a more adverse epidemiological scenario. In fact, non-performing loans have remained within the margins of DineritoXtra and followed a behaviour similar to that of 2019. On the other hand, the issuance did suffer a significant slowdown, mainly due to the closure of government offices, schools and hospitals (whose employees are our main clients) and the physical inability to provide credit services during the lockdown.
* The average effective collection from April 2019 to September 2019 was 93.03%, while from April 2020 to September 2020 it was 95.22%.
Taking into consideration the information presented in graphs C and D, the states in which DineritoXtra is present did not have as great an impact on delinquencies as the one that occurred at the national level. In fact, this impact was almost nil with the exception of Jalisco and Coahuila.
Since May 29 2020, every Friday the Ministry of Health presents an indicator of risk in each state. You can see which activities can return to normal activities with their respective sanitary measures.
Due to the fact that DineritoXtra’s client portfolio consists of government employees, special attention must be paid to the measures dictated by the Ministry of Health. In general, it needs to be considered that the federal government has instructed that government workers should not return to work at the office until January 5, 2021, which obstructs new loans issuance. Nevertheless, this ban will not affect our collections since the payment is collected from paycheck – when the government pays our clients’ salaries. However, the issuance of new loans of DineritoXtra could continue to be affected for the rest of the year and the growth of the portfolio would remain marginal (around 2 to 3% of net growth).”
Credissimo Covid-19 update
1. How do you view the current situation in your markets with borrowers’ ability to make repayments?
“As of the end of September 2020 (and currently in October), we observe a general trend over the past months in the behaviour of our clients to become more stable and constant in their repayment capability and in the demand for new funding. The volumes in our business activity record continuously increasing and less volatile levels since March-April and move gradually towards the pre-crisis level, though still lagging the development achieved in the comparable period in 2019.
Together with moving forward away from the most restricted period during the lockdown that was depicted by strong uncertainty, we consider that positive effect to the behaviour of borrowers was achieved by the anti-crisis social measures that the Government implemented both to the individuals and the small business. Moreover, while being isolated and shifting to remote work, away from the office, people have managed to redistribute their monthly family budget to the new most important cost items, which has also led to some savings in overall costs and regular daily expenditure and improved the level of their disposable income, respectively their ability to better service their outstanding loans.
The observations based on our portfolio management data reveal that the overall collections for the nine months of 2020 have slightly outperformed the overall collections for the comparable period in 2019 by 5%, compensating monthly drops in March, April and May 2020.
In addition, we monitor that:
– Above 80% of loans are receiving regular payment on their instalment dates on observed data for the period March-September 2020 as performance reaches levels close to pre-crisis months with every following month after the lockdown;
– Above 75% of restructured or prolonged loans are already stepping in regular repayment cycles.”
2. Are there moratoriums or movement restrictions still in place or other considerations related to a pandemic/global crisis that has impacted or might impact your business until the end of 2020?
“During the lockdown period in Bulgaria, the moratorium on loan repayments was only imposed on banks. Non-banking financial institutions, like Credissimo, were not obliged to implement any similar restrictions.
Nonetheless, Credissimo was the first company in the sector, which stood out and offered to its clients, affected by COVID-19, the option to extend or restructure their loans in similar terms to what banks did. More than 95% of our clients, who applied for this option have been approved and assisted in this difficult situation. The overall share of the extended portfolio is 5%. What is important to note is that we did not pass on the extension to our investors on the Mintos platform, but instead we repurchased all extended loans and serviced our payments through the platform in a regular manner.
As at the current moment, there are no moratoriums or other restrictions that directly impact the business of Credissimo.”
3. Have you made any additional/new changes in your business as means of adaptation to the new market conditions?
“Our entire online business model proved to be sustainable during these socio-economic uncertain times and periods of the lockdown. Our customers are provided with the benefit to enjoy automated and remote service without any necessity to visit offices, meet consultants or even go to the ATM to withdraw their funds. We have not implemented any changes to our regular business activities, other than already shared in our previous Covid updates.”
4. Please share your business outlook for the rest of the 2020 and 2021 Q1.
“With the upcoming winter months and the notches of the second wave of the pandemic building up, no firm certainty can be applied in predicting how companies will finish 2020 and how accurate 2021 could be forecasted. Based on our observations, business performance and main KPIs, we expect to continue to be stable both in terms of granted loans and collected amounts in the next months while acting towards normalizing operational volumes at pre-crisis levels after Q2 2021. In terms of our presence on the Mintos platform, we plan to continue our steady supply of fresh placements and to serve all upcoming transactions in due course and timely manner, just like we always did, even in the most difficult times this year.”
ID Finance Spain Covid-19 update
ID Finance Spain recently announced its financial results for the 9-month period to 30 September 2020 (9 months of 2020):
– Revenue up 47% to € 47.5 million
– Net profit up 92% to € 3.4 million
– Equity ratio keeps on a sustainable level of 20.1%
– Debut Eurobond issue: € 40 million Eurobond issue on Frankfurt SE
Boris Batine, Co-founder and CEO of ID Finance: “Despite the challenging environment we’ve managed to access the public capital markets and issue debut € 40 million Eurobond on a Frankfurt Stock Exchange to fuel the growth. Furthermore, the collective effort of our experienced team has resulted in resumed growth and profits of € 3.4 million for the first 9 months of 2020 (+92% Y-o-Y). Outstanding results for the first 9 months of 2020 proved that we are moving in the right direction.”
Review of operations
“The quality of our portfolio has improved over the past 6 months. The main reason for this is the rapid and adequate changes in credit policy as a response to the COVID-19 pandemic. ID Finance has offered mitigation tools to clients to help them through a challenging period. All these prevented the portfolio from deteriorating and even improved with NPL 90 day + ratio declining from 43.7% of the gross portfolio as at 31 December 2019 to 28.4% at 30 September 2020.
At the same time, we keep focusing on optimising the company’s cost base. As a result, net income margin improved from 5.5% of revenue in the first 9 months of 2019 to 7.2% in the first 9 months of 2020.
Regarding internal processes, we took measures to rearrange our company’s offices according to health criteria to guarantee a safe return to the office. ID Finance Spain was certified as a COVID-free workplace by an independent auditor, Audelco, who conducted a prudent assessment of the company’s ability to protect the health and safety of its employees during the pandemic.”
Solid balance sheet
“ID Finance Spain is in a strong capital position, with € 8.8 million in equity. The equity ratio increased over the period from 16.4% to 20.1%. Besides, we managed to substantially diversify the funding sources by issuing Eurobond, the unsecured and longer-term source of financing.
Cash comprised 11.0% of assets as of 30 September 2020 supporting strong and healthy liquidity buffer.”
“Investors on Mintos remain important partners for ID Finance Spain. With the lifting of the state of emergency, our company resolved pending payments and continues to serve the loans according to the schedule.”
“We see a gradual market recovery. Credit applications have surpassed pre-crisis levels. The company gradually increases lending volumes again, however, it maintains tighter credit criteria and continues to focus on operational efficiency and profitability.”
Evergreen Finance Covid-19 update
“We would like to update our valued investors six months into the COVID-19 pandemic. After enough time has passed, enabling us to assess the impact of the pandemic on our operating model and on our borrower base, we are pleased to announce promising results and a positive outlook.
There are several loan portfolio metrics that provide a positive view of our underwriting strategies and, as a result, a good indication of our borrowers’ ability to meet their repayment obligations. As of September 2020, these indicators show a positive trend in overall loan performance, since the start of the pandemic.
Two of these metrics are outlined below:
– First Missed Payment Rate “MPR” – A leading indicator that provides us with a real-time measure of the percentage of first contractual repayments that fell overdue. For the 6 months ending 30th September, we have observed a 34% improvement in this metric compared to the immediate six months prior to the pandemic. This positive trend demonstrates an overall strengthening in our portfolio, despite the macroeconomic impact of the pandemic.
– Months on book payoff – Measures the cumulative principal and interest collected over time relative to each monthly lending tranche. Since the start of the pandemic, we have observed a 10% improvement in the cumulative principal and interest collected within 3 months of origination, relative to the levels we observed pre-pandemic. This again demonstrates a positive trend in our borrowers’ ability to make repayments.
A contributing factor to this positive trend is our COVID19-specific underwriting policies, which are designed and have proven to minimise our exposure to COVID18-impacted customers. Additionally, for customers whose employment and income have not been negatively impacted, we observe a higher average Net disposable income as compared to the pre-COVID19 levels, likely due to less discretionary and recreational spending in the market.
The UK government currently has in place a 3-tier system for controlling movement both socially and in workplaces. Regions are allocated a tier (‘medium’, ‘high’, or ‘very high’) depending on the prevalence of COVID-19 in the local community. Areas in tiers 2 and 3 face some business closures and relatively severe restrictions on movement, which has inevitably impacted employment levels and consumer income.
However, there continues to be a generous government COVID19-specific furlough scheme as well as a package of other financial support to limit the economic impact of the pandemic in the UK.
From a lending-specific perspective, in April 2020 the FCA introduced temporary emergency guidance to lenders. This included the requirement for lenders to offer those customers financially impacted by the COVID-19 pandemic a minimum 100% interest-free one-month deferral. This was initially in place for a period of three months but was subsequently extended to allow customers to request this deferral up until the end of October 2020.
To further support our customers, we proactively introduced an alternative option. This involved splitting the next payment 50/50 and extending the length of the loan by one month. We have also made the following changes to our lending criteria to ensure our underwriting policies are robust to adapt to new market conditions:
– Developed a ‘COVID19 risk’ algorithm within our systems to discover the most vulnerable applicants and ensure we are taking additional due diligence prior to approval
– Introduced weekend lending to ensure we can fund successful applications every day of the week
– Implemented clear loan term limits and restrictions for furlough approvals – safeguarding customers as well as the business
– Request additional, relevant documents from customers flagged by the COVID19 risk algorithm
– Increased our NDI requirements
Our initial response to the global pandemic was to reduce our monthly loan issuance until we could better assess the impact of the pandemic on our loan portfolio and borrower base. This was coupled with implementing cost control measures within our lead generation strategy to maintain business profitability.
After assessing the impact of the global pandemic and seeing positive trends in our collection metrics, we have successfully returned our loan issuance levels in Q3 2020 to pre COVID19 levels.
The business outlook for the remainder of 2020 and Q1 of 2021 remains positive and the business strategy is to continue to grow our loan book. At the same time, we recognize the increased volatility that has arisen from the COVID-19 pandemic and are continuing to assess the situation closely in order to respond to any changes in a timely and appropriate way.”