Our experience with Twino has been good until now....
Interest rates were good during 2016 – often 12% or higher. It was possible to invest with a sterling account. Twino provided a guarantee to buyback all loans more than 30 days overdue. A lot of loans went 30 days overdue…. That can be expected when you are charging interest rates of almost 150%. However, there have been some changes and events recently that are making us cautious. We have been cutting our exposure to Twino recently. Here’s why:
7 reasons we are getting nervous about Twino
- Twino have provided an estimate for their 2016 revenues on their website, but no estimate for earnings. This is a concern to us.
- They have informed us that audited figures for 2016 will not be available until the end of 2017, which they are blaming on the ‘pace of auditing’. There may be several genuine reasons for this, but a slow audit is usually not a good sign. We do not understand why it would take almost 12 months to produce audited figures.
- The level of defaults on recent originations appears to be extremely high. We have seen the data for one investor, where 86% of instalment loans (with payment guarantees) purchased since March moved to ‘defaulted’ status (more than 30 days overdue), with a further 9% delayed. Other investors have reported similar performance. Twino explains that their system overstates the true level of delinquencies but even allowing for this, the credit performance seems extremely weak.
- There is very little information provided about the health of the entire Twino group. We would like to see consolidated financial statements for the entire group, and explanations of the funding structure. The information provided so far contains several inter-group transactions that have not been explained properly and investors are not receiving the full picture. The only financial statements made available for the Twino lending subsidiaries are the 2015 statements for the Georgian entity.
- In March 2017 Twino introduced ‘payment guarantees’ rather than buyback guarantees. This change means that investors are now left owning non-performing loans for up to 2 years, and relying on Twino to make the payments due. The loans cannot be sold on the platform. The lack of financial information about the Twino group makes this an uncertain risk profile.
- A large number of staff were recently terminated. There have been no public announcements about this but the terminations were attributed to efficiency savings. We have no reason to doubt there were efficiency opportunities, but this creates an additional perception issue around the company. It is rare for a start up business that is doing well to undertake significant cuts to employee numbers.
- Monthly loan originations have recently dropped to €7 million from a consistent €11-12 million. This could be due to several factors, but Twino have mentioned that it is at least partly because less funds are being given back to investors each month through the buyback guarantees. If there is strong demand for the loans on the platform, we don’t think the reduction of cashflow from buyback guarantees should have significantly reduced originations, particularly as the buyback payments were being funded by Twino in any case.