We are watching how COVID-19 impacts credit performance, liquidity, operations and solvency of P2P loan originators
Creditstar is a European loan originator that operates in 8 countries. Their loans are available to P2P investors at Mintos, and also its new P2P subsidiary Lendermarket. Creditstar has been operating for 14 years and has been consistently profitable. It has long been one of the higher rated LO’s in our Mintos ratings on the basis of its strong profits, long track record and balance sheet strength. Last month we ran a stress scenario to get a feeling for what the impact could be on Creditstar of the COVID-19 crisis. However we realise there is a limit to how much insight one can get from this type of analysis without access to important company information that is not publicly available, such as liquidity outlook, and insights into how borrowers are behaving right now.
Since then Creditstar has also had to deal with the introduction of new COVID-19 related rules in countries like Poland, which allows borrowers to extend their loans. Loan extensions have led to problems for many loan originators relating to how the loan status has been reported to P2P platforms, including Creditstar (as this had not been envisaged happening previously).
To help investors get a better understanding of the current position of Creditstar, we asked the CEO of Creditstar, Mr Aaro Sosaar to provide responses to questions that we thought were most important for investors in Creditstar loans right now, including some from our readers. He kindly agreed to this, and we publish his answers below.
Interview with Aaro Sosaar, CEO of Creditstar
Hi Aaro. You have a bond coming to maturity in June. How are you planning to repay that bond? Do you need to try and issue a new bond in April or May to do so?
Creditstar has been issuing bonds since 2007. We have a large bond program (since 2016) and within the program, we have different tranches with different maturities. Tranches are usually maturing every 6 months. We plan to renew a large part of the bond, repay some part and also attract new investments.
OK. Is there any risk it will not be possible to do the ‘partial renewal’ you talk about of the bond before June? How close are you to raising the funds needed?
We are confident and we do not currently see a risk of renewal. We already have positive feedback from the bond investors and the bond tranche is not significant in size.
How comfortable are you with the liquidity position of Creditstar over the next 9-12 months? What risks do you face?
Creditstar is in a very good position as we have the experience of how to deal with our loan portfolio clients during the time of crisis, as we successfully came through the financial crisis of 2008. Our experience is that being proactive with clients and offering reasonable flexibility results in a win-win situation for both our business in terms of loan portfolio quality and customers in terms of paying their loans on time. That being said, we are of course being more selective when it comes to issuing credit to new clients given the economic circumstances with COVID-19 lockdowns and its effects to the economy and certain business sectors.
Poland have announced plans to give borrowers forbearance due to the COVID-19 disruptions. How will that impact Creditstar? Will P2P investors be impacted too?
In Poland there is a new temporary cap on consumer loans costs, reducing the price that lender can charge for one year. For us it means adjusting product configuration on short term loans. We don’t expect a significant impact to the business or to investors from these temporary measures.
Some investors have seen very high levels of late loans in their Lendermarket portfolios. It has been explained that this is because Mintos and Lendermarket are not able to take into account situations where you have voluntarily extended loans. But some investors seen 100% of their loans shown as late on Lendermarket. Surely not every customer would have requested a loan extension?
We at Creditstar understand that these can be challenging times for our clients and we are providing our customers with solutions such as discounts on extensions, restructured and better-suited repayment schedules. We are doing all of these initiatives to strengthen our client relationships and to help our clients through these difficult times.
How we are helping our clients:
- favourable terms (discounts) on grace periods and extensions
- discounts on fees
- flexibility with modifying repayment schedules to make smaller monthly instalments
- we have extended the soft (in-house) collection period in order to postpone hard collection in most cases during the crisis
- free grace periods offering to frontline health-care workers who are responding to coronavirus
As we are now in an unprecedented crisis and many of these changes were done very quickly by Creditstar to help our customers, we are now working on finalising updating Lendermarket platform to more accurately reflect the real status with the customer. Currently the statuses on the platform might not reflect the actual status with the loan, which could be extended or with a modified schedule. During these weeks, our IT team has been working around the clock to repair this information exchange issue and expect this to be solved very soon.
The terms of Buyback Guarantee still continue to apply to all loans on the platform. Along with continuous accrual of interest during any state of the loan.
What can you tell us about how the portfolio is performing over the last month? How much has your non-performing loan (NPL) rate increased?
Currently, we are monitoring daily the performance of our loan portfolio and so far, the loan portfolio performance remains at the usual levels, so NPLs have not increased. But we are expecting some delays in repayments in the upcoming periods given the current situation in the economy, where we already see people’s employment suspensions, lay-offs, etc. That being said, our experience from the 2008 crisis was that although payment amounts decrease, there are loan schedule extensions etc. but most loans are recoverable, as the loan amounts are small and the average customer is a relatively young person in their early or mid 30’s, who, even if in the short run have some liquidity issues though losing their job, will be re-engaged and can take care of their liabilities. We also consider government stimulus measures will have a positive impact to our customers who will have problems with repayment.
How much have you reduced new lending by? What can you tell us about how you have tightened your lending criteria?
We have reduced our growth in new lending in April and the underwriting policy and credit scoring model (lending criteria) has been set in a way that we reduce risk of the customers segments that are employed in the business sectors that we consider risky (most hit by the lockdowns).
Some of the loans being placed on Lendermarket are from your Denmark subsidiary. How will you be impacted by the new rules being introduced there to limit interest rates to 35%? It seems that Creditstar’s loans have much higher interest rates than this….
Creditstar has been operating 14 years since 2006 and we have seen many different legislation proposals and changes being introduced in different countries. We have different products in our product portfolio. Some with lower interest rates and some with higher, that we can offer our clients depending on a market conditions, giving our business the necessary flexibility to adjust to any changes, legislation or otherwise, in the markets we are operating in. Denmark is the newest market for Creditstar. We started approximately one year ago, and our strategy is to launch with the short standard loan product and gradually introduce other, more flexible and longer-term products to the market.
It is our understanding that the regulation in Denmark has not been passed yet, so there is still uncertainty around the exact new regulation, caps, timelines, etc. But if necessary, we would have no problem operating profitably even with an interest rate cap of 35% (we do similarly in Sweden). The overall strategy of the company is to introduce longer-term instalment products and credit line products in all markets in due course.
Do you have potential sources of capital available (potential equity partners) if the company needs to strengthen its capital base in the next year?
Yes, the company has thousands of P2P investors, many hundreds of bond investors and is well positioned to tap into new capital sources if necessary.
So if the company needs more equity capital you are confident in being able to raise it?
Yes.
All P2P lenders face some challenges right now
COVID-19 has obviously introduced extra complexity and risk for all lenders. Governments around the world have been changing the rules and regulations. Some borrowers have seen unexpected reductions to incomes. Economies are contracting. No one really knows how long this disruption will last, and what the impact will be. And for the first time since 2008/09 there is a renewed focus on liquidity.
All of these factors apply to Creditstar too. Creditstar loans are more risky today than they were in February. However the returns paid to investors have gone up too. Investors need to make their own decisions on what to do. We are keen to see Creditstar improve and fix their loan status reporting, particularly at Lendermarket. And we look forward to them making an announcement soon on their next bond issue.
However even acknowledging these challenges, this is still a company that has come through the last financial crisis, has a profitable business model, diversified funding sources, and €25 million of equity. Not many other loan originators on Mintos can say the same thing.
Creditstar 2% bonus
Creditstar loans can be found at both Mintos and Lendermarket. Rates change from day to day but they are typically around 12-15% currently. Lendermarket are currently running a promotion for their investors - a 2% cashback offer for amounts invested before April 30. If you are not currently a Lendermarket investor simply open an account using the link above and invest prior to this date to qualify.
Hey Oscar,
it would be nice to see an updated response to the question “Is Creditstar still a solid loan originator?” considering the latest developments and figures….
Thanks and kind regards,
Daniel
Hi Daniel, check out our latest comments on the Creditstar results on our Mintos lender ratings page.
Hello Oscar,
I saw that Creditstar is issuing bonds (6 months and 12 months) with an amazing coupon rate of 13%.
I think that JMN talked about it some time ago.
If interested, I have a pdf from Credistar describing these 2 bonds.
My question are :
1- Is Creditstar a financially secure enough company in the current situation?
2- these are 6/12 months bonds. So is there a chance they go bankrupt in one year time?
3- are these coupons a safe investment?
4- as they have a similar annual interest rate as loans on the Lendemarket platform (14%), would you recommend buying these bonds instead of personal loans? Are they a safer investment?
Thank you in advance for all your comments!
Good morning Oscar,
With the impact of the pandemia, there are regulations in at least 2 countries covered by LenderMarket / CreditStar : Poland and Spain.
But I am now confused about the risks if investing in loans of these2 countries.
– are both countries risky ? Hence we should only pick loans from the other coutries (i.e CZ, FI, …) ?
– or is only Poland risky ? Hence we can also pick loans from Spain ?
Thank you for your clarification 🙂
Regards
Hi Centrino. Both countries are covered by the Creditstar guarantee. In theory that means the risks to you from all loans are the same. Many Polish lenders have suffered problems recently, and the government introduced new rules that makes it very difficult to lend profitably. This means that we would prefer to own loans in other countries, even with the Creditstar guarantee. In Spain, the government brought in rules to give payment deferrals, but that scheme is coming to an end, and the overall situation appears to be improving. We would prefer those loans over Poland.
Great Oscar ! Thank you for your detailed explanation 🙂
Did they issue bonds?
Andrzej they have announced successful placement in June of €18.3m of bonds, which is good news.
Some new observations:
* My pre-covid loans have been correctly bought back after reaching 60D late as expected.
* The 2% bonus is expired and the new listed loans are back to 12%, sadly i consider this non-competitive with the covid crisis still pending. I’m not ready to re-invest at pre-covid yield.
* Thus, it shows Creditstar is not running after cash.
Hello JMN : great conclusions 🙂
Centrino
Hi JMN – just to let you know, the 2% offer has been extended now until 31 May.
Very interresting, thanks! Also the loans are back to 14% (they dropped to 12% for one day only).
@JMN :
Indeed. Interesting to see that the interest rates again increased to 14%.
But isn’t the risk the same as during the 2 last months? i.e. see all the loans going overdue; and then having to wait (again) 60 days for buyback ? Is this impacted differently if we choose Poland loans or Spanish loans ? Or not ?
I am wondering.
What is your view on this ?
Thank you and regards
Ok, let’s be more verbose. I’ve Creditstar loans in the 10Ks (both Lendermarket and Mintos) so I follow them closely.
* Covid: I feel we have a clearer view of the issues, and the situation got more stable. The stock exchange stopped to collapse for example. I’m less in a cash-out mode than 2 months ago.
* Creditstar: I observed good points. No missed buybacks on Lendermarket, no more Pending Payments on Mintos, except for CZ loans. Less than half 60D late loans are extended for Spain and Poland, the common loans on Mintos. Loans there are no longer discounted at -5%, rather -1%.
* Lendermarket : withdrawals still 24h, and more varied loans proposed than before. Some are paid on time, and I even got some early repayments. I wouldn’t say one is more at risk than the other, if Creditstar collapses, it would be global on Lendermarket. Still I plan to buy mid-long terms loans more than the short ones (Mintos is better at short loans).
Overall I’m positive about Creditstar. At 14%+2% they are competitive again, even if not the absolute best (you can find Mogo Car or DelphinGroup loans at 16% on Mintos).
Choosing between Lendermarket and Mintos+Creditsar, Lendermarket is now better, except for exotic loans like Zloty or 50-month Estonia, available only on Mintos.
Correction : Creditstar a now zero Pending Payment on Mintos. Another good point.
Extended!
I got, for the first time, loans extended, on Lendermarket. However the Buyback terms are:
“” A Buyback Guarantee is a guarantee from the Loan Originator to the lender for a particular loan to buy back the loans that are more than 60 days overdue from their original due date at the nominal value of the outstanding principal, plus accrued interest income. “”
>original< due date. There should not be any extension, at least not retroactive. Huge, and bad, surprise this time.
Lots of words to say absolutely nothing. Is it arrogance, is it incompetence, is it because the numbers are horrible, it’s hard to tell, but this is not inspiring trust at all.
Helo Serge, ‘happy’ to read that some of us have the same (bad) opinion 🙂
Regards
Hello Oscar,
Thank you very much for sharing that interview, I think you asked very good direct questions. Unfortunately from my point of view Mr. Sosaar answers were not sufficient enough, it was not clear to understand what the real situation now in Creditstar is. It seems that he doesn’t want to share too much information, which doesn’t make me very confidence.
The answers are very high level using same standard sentences as before
It is very nice to hear what Creditstar is doing to their customers BUT I couldn’t understand what they are going to do trough out the investor.
No concrete plan, no direct answers … I would say arrogant …
I fully agree with your opinion (see my previous comment for more details).
As I lost confidence, I’ll withdraw all my investments from LenderMarket. There are definitely better platforms out there, which care more about their investors.
Regards
Hi Oscar, thanks for sharing with your readers about how Creditstar is dealing with the COVID-19 crisis. This is exactly the kind of research more P2P bloggers should do.
My 2c regarding Lendermarket:
When asked about the possibility of a moratorium for some Creditstar markets, they replied quickly and in a clear way. The answers were very similar to this post.
However, like some readers from this blog, I am also deciding to reduce my portfolio in Lendermarket (due they’re the most recent P2P in my portfolio, and loans are not secured by a collateral).
In the meanwhile, for the remaining of my portfolio, I’ve been changing my investment strategy from short-term loans to the newer (and more stable) markets (Scandinavia + Estonia). As of today, most of those loans are on schedule.
BR
Hi all,
Adding to my previous comments, it seems like other investors my loans are now being bought back. Additionally, it seems starting today loan extensions feature has been added to Lendermarket. If they do not implement “pending payments” like in some certain platforms, that’s fine…
Regarding the loan extensions from today, they fully paid the delayed interest, so, in some way this is a nice plus (and in accordance to what Lendermarket support answered me).
BR
DB, thank you for your update !
About “it seems starting today loan extensions feature has been added to Lendermarket”, how did you notice it ? Is that visible on their site, at loan level,or in a report ? or did you receive an email from them ?
I am asking, because I could not see it 🙂
Thank you
Hi Centrino,
I noticed it by looking into the account statement and check some loan IDs which were going to be bought back soon.
On this particular case, they were not bought back, but instead extended for another 30 days. For now they put these entries on the account statement as interest and delayed interest, so you won’t notice easilly the difference yet.
Unfortunately, as of today, no official communication from Lendermarket; however, they mentioned on a support email loans would be extended up to 3 months, if needed.
Let’s see how they behave. 🙂
BR
OK thank you for your explanation ! 🙂
Finally some formal answers from Creditstar. After so much energy spent…
However, I remain with my first opinion : lack of proactive communication towards investors is a strategic mistake (just compare on how often Mintos communicates on their blog).
So I’ll stick to my decision to withdraw all my money from the platform on a regular basis. And then close my account on LenderMarket. End of the story from my part.
But let me thank you Oscar for your extended involvement in getting the answers from Creditstar ??
Yeah, thanks Oscar.
Mintos communicates a lot, but to announce bad news. Right now Akulaku has defaulted. Better no news and no default.
Agreed. They claim to be proactive, but I see no movement in my portfolio for three weeks, yet they have only sent an email about a new blog with some vague info and a general “do good by investing” message. Experience should know better about trust.
That is a serious contrast to Mintos. Even Iuvo famous for their generally vavue-ish emails became much more specific in their communication and actually gave me a call to give assurances and provide updates. This is being proactive.