You probably have seen this Bondora portfolio profitability table, if you have visited Bondora’s statistics page.
While interesting, this table uses Bondora’s creative way to account for overdue principal. In other words, for anything but the very old defaults, it barely accounts for overdues. As I’ve explained previously here and here for example.
Fortunately, Bondora uses a different methodology for their own assets in their annual reports:
According to the write-down policy, receivables which are 30-365 days past due are written down by 60% and receivables past due for more than 365 days are written down in full.
Bondora’s annual report 2019.
Adjusted Bondora portfolio profitability
If Bondora considers this to be a reasonable write-down policy for their own assets, we could assume it to be reasonable for investors as well. We’re expecting payments from the same borrowers after all.
Let’s be a little bit more conservative though. I’ll be using the following method:
- Write down only loans that have actually defaulted (have default date in the dataset; roughly 74 days overdue at minimum).
- Write down principal by 60% for loans that have defaulted 30-365 days ago.
- Write down principal by 100% for loans that have defaulted more than 365 days ago.
Profitability of Bondora’s portfolio after write-downs
| Amount issued (€) | Interest paid (€) | Principal overdue (€) | Gross profit (€) | |
|---|---|---|---|---|
| AA | 14 563 605 € | 1 084 470 € | 542 564 € | 541 906 € |
| A | 12 762 433 € | 1 940 155 € | 1 104 414 € | 835 741 € |
| B | 32 579 100 € | 6 121 158 € | 4 259 398 € | 1 861 760 € |
| C | 56 831 522 € | 11 828 403 € | 9 012 291 € | 2 816 112 € |
| D | 69 092 822 € | 15 115 863 € | 13 464 545 € | 1 651 318 € |
| E | 84 519 250 € | 16 542 974 € | 15 947 153 € | 595 821 € |
| F | 78 920 322 € | 21 137 143 € | 27 512 064 € | -6 374 921 € |
| HR | 25 045 343 € | 7 571 440 € | 12 605 167 € | -5 033 727 € |
| N/A | 1 741 777 € | 539 251 € | 60 591 € | 478 660 € |
| Grand Total | 376 056 174 € | 81 880 857 € | 84 508 187 € | -2 627 330 € |
Turns out that using Bondora’s write-down policy, the whole portfolio issued since 2009, is about -€2.6 million in loss, instead of €46 million in profit.
This loss seems to be generated entirely by loans with F and HR ratings. Let’s look at the numbers more closely by dividing it up by country.
Estonian portfolio profitability
Estonia has been Bondora’s biggest and best market historically, so we can expect a relatively decent result from here.
| Amount issued (€) | Interest paid (€) | Principal overdue (€) | Gross profit (€) | |
|---|---|---|---|---|
| AA | 14 182 489 € | 1 042 447 € | 423 659 € | 618 787 € |
| A | 12 389 646 € | 1 902 623 € | 939 712 € | 962 911 € |
| B | 30 501 912 € | 5 667 553 € | 3 488 048 € | 2 179 505 € |
| C | 47 776 052 € | 10 434 946 € | 6 944 541 € | 3 490 405 € |
| D | 49 009 269 € | 11 262 782 € | 8 172 318 € | 3 090 464 € |
| E | 33 316 648 € | 9 070 022 € | 7 152 536 € | 1 917 486 € |
| F | 4 981 991 € | 1 973 063 € | 1 376 073 € | 596 989 € |
| HR | 3 663 393 € | 1 708 935 € | 946 975 € | 761 960 € |
| (blank) | 1 699 577 € | 527 807 € | 49 917 € | 477 890 € |
| Grand Total | 197 520 977 € | 43 590 177 € | 29 493 780 € | 14 096 397 € |
Every rating is showing a positive gross profit here, as expected. Even F and HR ratings are showing a positive return.
Spanish loan portfolio profitability
| Amount issued (€) | Interest paid (€) | Principal overdue (€) | Gross profit (€) | |
|---|---|---|---|---|
| B | 38 600 € | 2 595 € | 22 515 € | -19 920 € |
| C | 574 311 € | 53 052 € | 87 238 € | -34 186 € |
| D | 6 491 101 € | 670 273 € | 908 777 € | -238 503 € |
| E | 4 971 750 € | 998 442 € | 1 699 901 € | -701 458 € |
| F | 25 187 930 € | 5 384 600 € | 6 409 926 € | -1 025 327 € |
| HR | 13 092 575 € | 3 597 424 € | 7 466 749 € | -3 869 325 € |
| (blank) | 1 000 € | 134 € | 975 € | -841 € |
| Grand Total | 50 357 267 € | 10 706 520 € | 16 596 081 € | -5 889 561 € |
If you have invested into Spanish loans on Bondora, the negative result should not come as a surprise for you. With a total of €50 million invested, the portfolio has generated almost a -€6 million loss so far.
There is loss from every rating, with HR leading the pack with a wide margin.
Finnish loans profitability
| Amount issued (€) | Interest paid (€) | Principal overdue (€) | Gross profit (€) | |
|---|---|---|---|---|
| AA | 381 116 € | 42 024 € | 118 905 € | -76 881 € |
| A | 372 787 € | 37 532 € | 164 702 € | -127 170 € |
| B | 2 038 588 € | 451 010 € | 748 835 € | -297 825 € |
| C | 8 481 159 € | 1 340 405 € | 1 980 512 € | -640 106 € |
| D | 13 569 937 € | 3 180 428 € | 4 370 123 € | -1 189 695 € |
| E | 46 185 592 € | 6 466 526 € | 7 065 720 € | -599 193 € |
| F | 48 567 588 € | 13 748 657 € | 19 586 116 € | -5 837 458 € |
| HR | 7 784 721 € | 2 198 679 € | 3 814 985 € | -1 616 306 € |
| (blank) | 41 200 € | 11 310 € | 9 699 € | 1 611 € |
| Grand Total | 127 422 688 € | 27 476 572 € | 37 859 596 € | -10 383 024 € |
Again, all Ratings are generating a loss. For Finnish loans the F rating is the biggest culprit. A total loss of over -€10 million is significantly larger than the loss for Spanish loans.
However, it is only larger because the volume in Finland is more than twice that of Spain. Spanish loans have lost a lot more as a percentage than Finnish ones so far.
Slovakian portfolio profitability
But even Spain pales in comparison to the Slovakian results. With barely €755k total loans issued, it has managed to generate a hefty -€451k loss.
| Amount issued (€) | Interest paid (€) | Principal overdue (€) | Gross profit (€) | |
|---|---|---|---|---|
| D | 22 515 € | 2 379 € | 13 327 € | -10 948 € |
| E | 45 260 € | 7 982 € | 28 995 € | -21 012 € |
| F | 182 813 € | 30 823 € | 139 948 € | -109 125 € |
| HR | 504 654 € | 66 402 € | 376 458 € | -310 055 € |
| Grand Total | 755 242 € | 107 588 € | 558 730 € | -451 142 € |
For every €100 invested into Slovakian loans, almost €60 has been lost at this point. Again, every Rating is showing a loss.
In conclusion
By using Bondora’s own write-down policy, we can see that the entire Bondora loan portfolio has lost investors money. As of the end of July 2020, investors have received a pre-tax loss of more than -€2.6 million.
Although it may initially seem that the F and HR ratings are causing the loss, this is actually not the case. Loss is simply driven by non-Estonian markets where the volume of F and HR is higher.
The only profitable market has been the Estonian market. For every other market every single Rating has given investors a loss so far.
What do you think? Is using this write-down policy on Bondora’s portfolio:
a) fair
b) conservative or
c) too agressive?
Note that I did not discount at all another almost €6 million worth of principal from loans that defaulted less than 30 days ago. Nor did I discount any principal from loans that are simply overdue.
Also note that this analysis only looks at the situation at one specific point in time. The results can and will change over time. Either for better or for worse, depending on the volume of possible recoveries, loan repayments and new defaults.
Important! If you find any mistakes in the analysis or logic here, let me know in the comments below and I will gladly fix them. I did my best to double check the formulas and logic, but you never know for 100% certainty. CONSTRUCTIVE criticism and feedback is welcome and encouraged.
If you want to verify the analysis, feel free to download the excel from here (126 MB). I used simple formulas mostly, so should be easily understandable for most.
One reply on “Bondora Portfolio Profitability Revisited”
[…] of people who have investigated the profitability of investing through Bondora. One in particular (here) shows that the whole of Bondora’s portfolio (after write-downs) is actually in a loss. The only […]