Last updated - 27 May 2021
Mintos lenders can default or close down - choosing the best lenders is important
In 2017, Mintos lender Eurocent failed, and defaulted on its Mintos ‘buyback guarantee’ commitments. Since then there have been defaults and issues with several other lenders. Over the last 3 years we have been providing the scores and data on this page – our Mintos lender ratings. Our goal is to provide investors with key information on each lender, and a rating score to help highlight those that are lowest and highest risk.
To begin with, below we discuss some recent events:
Mintos gives new recovery estimates
Mintos has provided its latest update on how much it expects to recover from each lender in default. Total recoveries are forecast to be 55-60% across the defaulted loan portfolio (which is higher than the last Mintos estimate of 50%). The companies that had their recovery estimates cut were Cashwagon and Dziesiatka. Mintos also announced for the first time that investors will receive less than full recoveries on exposures to Monego and Aforti. We are not fans of how Mintos distributes cash received from defaulted lenders. Rather than distributing it pro-rata based on how much is owed to each investor, it distributes it according to the maturity dates of the loans owned by each investor. This means in effect that investors holding short term loans will receive full recoveries, and investors in longer term loans will often receive nothing. This does not make sense to us.
E-Cash is closing down. Investors will make a significant loss
Small Ukrainian lender E-Cash has announced that it is closing down. It has around €0.8m of loans outstanding on Mintos, with a further €0.4m of pending payments. Mintos has suspended E-Cash from the marketplace. We had rated E-Cash only 20/100 due to its small size, low capitalisation, and heavy losses in 2019. Mintos has now announced that the recovery rate for Mintos investors will be less than 25%.
Mintos lifts suspension of Sun Finance Denmark but the risks remain
In early 2020 we highlighted that Denmark was introducing an interest rate cap of 35%, and that this would impact many payday lenders in that country. We have since seen many lenders stop operating in the country as a result, or significantly cut back operations. Sun Finance has kept operating there. The consumer ombudsman has now highlighted several practices of Sun Finance that it says are illegal, unenforceable, and will be reported to the police. This includes charging a fee of 17% of balance for every month a customer does not provide certain financial information, as well as over-charging of default interest, and not including certain mandatory fees within the APR calculation. Several other unfair terms were noted, including the requirement to immediately repay a loan if a customer’s credit rating fell beneath a certain level. These allegations appear to be very serious breaches of the regulations and there appears to be a high risk that the loans will be found to be not enforceable.
We note that the Sun Finance CEO has stated that he believes that the loan terms are compliant and has been reviewed by experts. Mintos initially suspended Sun Finance Denmark from the primary market but it has now reversed that decision because there is no active legal case against Sun Finance currently. We are very surprised by this decision as it will obviously take time for any actions to be taken by Danish authorities, and the lack of an any actions now does not mean that the Ombudsman’s complaints have no merit. There is absolutely no upside for Mintos investors to take on any regulatory risk and we continue to expect the smarter investors to sell and avoid Sun Finance Denmark until the matter is fully resolved.
Mintos updated its ratings
Mintos has just released updates to its loan originator ratings. You can find the full details here. Most of the changes were score upgrades. We didn’t see anything particularly noteworthy or alarming – in most cases the new scores are now more in line with what we would have expected.
Mintos improves diversification options for its 'custom auto strategies'
Mintos continues to try and fix its auto-investment algorithms b providing greater functionality and controls for investors. We have been critical in the past of the various auto-invest algorithms operated by Mintos, as we felt it did not offer enough control over the allocation of investments to different loan originators. That’s a big problem, as there is a wide range of credit quality within Mintos, and the Mintos ratings don’t always reflect reality. We continue to prefer setting custom auto-invest strategies for each loan originator group as this provides the highest level of control. However Mintos has announced that it will allow investors who use custom auto strategies to manually set % limits on the amount of funds allocated to each loan originator. That’s definitely a big improvement for people who use only a small number of strategies and something that should have been introduced a long time ago.
Key financial information of each Mintos lender
The table below captures the key financial information for each lender. This can be useful to quickly lookup the profile of each lender, and compare the strengths and weaknesses of each one.
All Figures in EUR million (profits annualised where appropriate). Last updated 13 May 2021:
Note: S = Suspended D= Defaulted W = Solvent windown
Our Mintos lender ratings
Our Mintos lender ratings are based on 5 characteristics – profitability, capitalisation, size, track record and the quality of their reporting. We have allocated marks out of 20 for each metric, giving a total score out of 100. Mintos have recently changed their ratings system, which is now a number from 0-10. A W/D indicates that Mintos has withdrawn their rating.
Consider country risk too
Mintos offers loans from many different countries around the world, and some countries are more risky than others. To help investors assess the risk level of each country, we have published a country risk ratings page. This takes into account factors such as currency risks, sovereign risk and the local business environment. We think it is worth considering these risks when building a portfolio allocation, in addition to the LO ratings above.
Key updates: May 2021
We think the subordinated debt is a weaker form of equity injection and we have given less credit to it in our capital scoring than if ‘real’ equity was injected. High leverage remains Mogo’s biggest weakness. Mogo’s loan portfolio seems to be performing fine, with stable NPL ratios. Our new score is 65, up 4
Updates: April 2021
Updates: March 2021
active on Mintos is the Kazakhstan subsidiary, we are now presenting financial information and scores just for this entity. The quality of information available about this entity is better than average, particularly because it recently published a prospectus as part of a bond issue. Our initial score is 63.
Updates: February 2021
We were also pleased to see that the company is (finally) taking steps to reduce its FX risk. Mogo has also announced that they are hoping to obtain an equity injection from new investors. That’s a good idea, because the company currently feels a little over-leveraged right now.
To reflect the turnaround in performance, our score is up 8 to 61.
The company had promised to clear the pending payments in the new year, and they have achieved that, with only a minor amount remaining at the end of January. The company successfully issued €20m of bonds in December (although admittedly at quite a high yield of 13.5%). The next issuance is planned in May 2021. On the audit side, the company has committed to using ‘an internationally recognised accounting firm’ (thought to be KPMG) to audit the 2020 results.
The audit of the 2020 results by a major audit firm will generate a lot of confidence among investors. That’s because based on the results provided to us, the company performed well during 2020. It has announced preliminary results for the year that show a profit of €5.7m. The underlying earnings during Q4 improved significantly compared to Q3, due to strong growth in net interest income and falling loan impairment charges. We would like to see Creditstar raise some equity during the first half of 2021 – it
has always operated with a fairly stretched balance sheet. It seems to have strong growth plans, and it is going to require an equity injection if it wants to do this while retaining the confidence of its creditors. Our score remains 72.
Updates: December 2020
Updates: November 2020
We have upgraded the ratings of these subsidiaries, but hope to learn more about how the Denmark and Poland subsidiaries have been able to perform so well. The weaker subsidiaries in Vietnam, Mexico and Kazakhstan did not provide any financial updates. These subsidiaries receive a group guarantee. However, as Mintos has a poor track record when it comes to enforcing group guarantees, we plan to continue rating these subsidiaries on
the basis of their own financials and track record. The Sun Finance group reported a profit of €12.1m in the 9 months to September, which was a strong result.
emerging markets. It also appears to have paid €4.7m of goodwill during Q3 on its acquisition of Kredo and Tigo. This acquisition, and the price paid looks very questionable given the current circumstances of Mogo. Another factor to highlight is that a large proportion of the reported equity consists of subordinated loans. This is lower quality capital than subscribed equity and there has been insufficient disclosures surrounding the terms of the instruments. Tangible shareholders equity (after deducting goodwill and
intangible assets) had fallen to only €0.1m as of Sep 30, which is concerning. Ratings firm Fitch has issued a negative outlook. One positive of their analysis is that Fitch are treating the subordinated debt as equity after presumably having reviewed the terms and structure of the instruments. Mogo announced that it had stopped lending in several countries, and was focusing on debt collection. These are probably sensible actions but they are not decisions that are made when things are going to plan. The continued losses,
uncertain outlook, non-core acquisitions, FX risks and deterioration in the size and quality of Mogo’s capital base means that we have significantly cut Mogo’s score from 72 to 53.
Changes in September & October 2020
Updates: August 2020
EstateGuru is an excellent site that offers loans secured on real estate. Rates are high - around 11%. Currently mainly focused on the Baltic region of Europe but with plans to expand into other countries.
Viventor is a similar site to Mintos, just smaller. Some secured loans are available. We also provide Viventor lender ratings.
Bulkestate is a small but growing site focused on loans secured on real estate. It offers loans secured by real estate. Their rates are the highest in Europe for secured loans currently (11-14%)
October is focused on lending to small businesses in France, Spain and Italy. Rates are often a little lower than the other sites we list here, but some investors will like October due to the countries it operates in.
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