We are watching how COVID-19 impacts credit performance, liquidity, operations and solvency of P2P loan originators
COVID-19 has created a lot more uncertainty about the outlook for almost every company in the world. The heavy falls in global equity prices reflects this. Last month we published our guide to reducing risks in P2P investing during these difficult times. One of our comments was that it was more important than ever to allocate funds to the highest quality loan originators. While the investment risks have increased, so have the returns that are now available to investors, through higher interest rates and new bonus offers. Some investors are pausing their P2P investments right now, while others are looking to take advantage of the high returns available.
To date we have considered Aventus Group to be one of the higher quality loan originators that are available to P2P investors. Their loans were previously listed on Mintos, but are now found at Peerberry. Peerberry is now the number 2 European P2P site, and Aventus is the largest loan originator there. We thought it would be of interest to many P2P investors if we checked in with the Aventus CEO, Andrejus Trofimovas, to see what impact COVID-19 has been having on them so far, and his plans to safely navigate the company through the coming months.
Even if Aventus Group seems better placed than most, how are things going right now? And what’s the outlook for the rest of the year?
Interview with Andrejus Trofimovas, CEO of Aventus Group
Hi Andrejus. Many of the loans on PeerBerry have been Polish loans issued by Aventus group companies. What impact will the new laws in Poland capping fee levels have on Aventus? Does Aventus plan to keep issuing new loans in the country?
On March 16th we took a decision to pause issuing new loans in Poland due to the unclear situation with a new legislation which could cause even “credit holidays” for all debtors. From April 8th we have renewed issuing loans only for our existing clients with a very good credit history, but not for new clients, as new clients’ risk is always higher. The new legislation was much better than we expected. From new things just lower interest rate cap was introduced. As profitability in Poland was very sensitive to risks and we can’t risk our or our investors’ money in a such unclear situation, we made more conservative decisions.
What percentage of the loan portfolio of Aventus is in Poland?
30% was the volume of Polish loan portfolio in total Aventus Group loan portfolio as of April 1st.
What is the liquidity position of Aventus? Are there any upcoming bond or other funding facility maturities in the next 3-6 months?
Aventus has no upcoming bond or other funding facility maturities in next 3-6 months. As of April 1st the size of the Aventus Group loans in good standing (days past due less than 14 days, without any interests and penalties) plus our cash on accounts was €38.8 million. All liabilities were €18.8 million all changed currencies rates are included here as well. As you see [even with an] extremely conservative calculation (other companies uses a DPD of 30 or more days, they include interests and penalties as well), shows Aventus Group having more than double debt coverage ratio, and this, as far as I know is one of the most healthy ratios on the market.
Aventus was profitable in 2019 but it now faces higher funding costs and increased default levels. Can it operate profitably in the current environment?
Operating costs are decreasing now. We are paying back a significant part of [the] P2P debt. We’ve decreased marketing costs significantly, as no marketing is needed now for loan issuing. [This means that] we are planning to be profitable in the future as well. For instance, March was one of the most complicated months for us, however we’ve managed to make approximately €0,8 million monthly (!) profit in March. Preliminary Q1 2020 Aventus result was a €2.5 million net profit. We don’t have any doubt about the profitability of our operations in 2020.
Aventus operates in Kazakhstan and Russia. What’s been the impact on Aventus following the large currency falls in those countries? Is Aventus expecting higher defaults as a result of macro issues in those countries (related to low oil prices)?
The most complicated situation is in Kazakhstan because of Government introduced “credit holidays”. However even in such circumstances we are managing to get approx. 50% of the planned cash flow on time. The rest is just postponed for 3 months, which is not a critical for us at all.
In Russia situation is perfect, the default rate is the same as before. We haven’t stopped issuing loans there, and even have risen prices. Profits in Russia will be growing according to our forecasts, as lots of traditional bank customers are coming to get our loans now.
Currencies in KZ and RU have lost less than 20% during last 3 weeks which is not ok, but definitely not critical, when we are charging around 2% a day. Kazakhstan and Russian loan portfolios together are approx. 14% of the total Group’ loan portfolio.
How has the business adapted to the impact of COVID-19? What are you seeing in terms of customer payment behaviour over the last month?
We are an extremely conservative group in terms of any forms of risks, so in these circumstances we decided to slow down issuing volumes significantly until we understand when the current crisis is over. You are absolutely right thinking that clients behaviour could be different in such situation. That’s why the best and most confident behaviour as we see in this situation now, is to pay back the biggest part of P2P debt, and restart more active lending in the beginning of May after situation is clear, and not to risk with issuing new loans. We are planning to pay back roughly 50-60% of all our liabilities by the middle of May.
We expect many other loan originators to be acting in a similar way to Aventus right now
We think that it is important to try and assess the impact of COVID-19 on profitability, liquidity, operations and lending volumes of the loan originators that are in their portfolio. Mr Trofimovas touched on all these points above for Aventus Group.
We expect that many other loan originators will also be temporarily cutting back lending strongly in many countries, particularly those where governments have introduced new price capping or forbearance regulations such as Poland and Kazakhstan. In our view one of the biggest unknowns right now is whether these payment holidays get further extended, and what percentage of customers will make their loan repayments once the extension period finishes.
Cost cutting and higher interest rates will also help many lenders to partially offset the likely impact of higher funding costs, and increased loan provisions. However it will be difficult for investors to be able to judge the extent to which these two actions can protect the profitability of each lender.
Aventus is going into the COVID-19 situation with a conservative balance sheet, low levels of debt relative to assets, and plans to reduce their P2P funding in response to lower lending levels. We prefer loan originators that are in this situation rather than those who have a high reliance on P2P funding, which may become very expensive or not available if investors lose confidence. Diversified funding and strong levels of equity relative to assets are more important than ever right now.