Bondora Stats Crash Course #2: Cash on Cash Returns

Bondora provides a ton of data and statistics for investors. However, this can easily lead to overwhelm and confusion. I will attempt to shed some light and provide helpful clarifications on some of the graphs and numbers you may have been introduced to already.

Short version: One of the easiest ways to estimate Bondora portfolio returns is through cash on cash returns. A step by step guide follows. Based on several 2017 months so far, you can assume a negative return.

Your returns on Bondora

For the returns of your investments on Bondora, you should always stick to calculating it yourself using XIRR. Thankfully it’s relatively easy with Excel or Google Sheets, once you find the correct figures on the Bondora site.

Here’s one guide on how to do this or this old post in Estonian from me if you prefer that language.

With Go & Grow you’re pretty much flying blind, unless you trust my estimates that I’ve shared here and there.

Bondora portfolio returns

If you want to figure out how the portfolio as a whole or a segment of it is performing, then the best place to find this, is again in their loan dataset. This requires some knowledge and work though.

Let’s try to find an alternative solution for this and do an example together.

Cash on cash returns

The easiest method is to look at the returns from cash on cash perspective. This eliminates any time element of money and tells us if in general investors have received more money back than they handed out in loans.

For example, if investors gave out €100,000 in loans in one month and have received thus far €70,000 in principal repayments and €40,000 in interest payments, then they would be €110,000 – €100,000 = €10,000 in profit.

This won’t tell us what the actual annualized returns are, but it will tell us if investors are earning positive returns (pre-tax) or negative returns.

Let’s look at an example.

Step 1: Cumulative cash on cash return

First, let’s look at the Cumulative cash on cash return graph on Bondora’s statistics page and pick a month that interests you. I randomly picked Oct 2017.

Cumulative cash on cash return for Bondora loans showing that many segments are at a loss.
At the moment of writing, Oct 2017 is still almost 38% in loss, with €1.1 million to go until breakeven.

The graph shows us that we still have €1,1 million to go until (pre-tax) breakeven point is reached and anything after that will be purely profit. However, this number alone is not very helpful.

Step 2: Current loans for this period

This €1.1 million can be earned in two ways:

  • Interest income from current and only little overdue loans.
  • Recoveries from defaults.

For this, we scroll down on the statistics page to find out the amounts of current and defaulted loans issued in Oct 2017. We start with the Monthly portfolios by overdue days graph.

Current loans for Oct 2017

Outstanding loan status of Bondora loans issued so far.
Monthly portfolios by overdue days graph shows us the amount of principal in each loan status. You may not be able to read the smaller amounts of some statuses.

We can see that there is around €323,000 principal in current status. I also could manage to see after some zooming in and out that there’s ~€18,000 in 1-7 days overdue and €31,000 in 8-15 days overdue.

Let’s consider any loan that’s up to 60 days late as current in this calculation. Here we could make rough estimates and round the figures up, or we could open the dataset and get more accurate number.

Based on these figures, I would’ve rounded it up to €400,000. Based on dataset, the figure is roughly €390,000. Let’s use the more optimistic €400,000 and give Bondora the benefit of the doubt.

Defaulted loans for Oct 2017

Let’s also find the amount of defaulted loans (60+ days late in this case) for the same loans. This will be needed later.

From the graph we can read that the 180+ days late amount is over €1.3 million. With some zooming around, we can also identify some other segments, but we can also get this info from dataset.

Let’s round up the dataset figures to a €1.4 million so we’ll get again a more optimistic result for Bondora.

Step 3: Loan duration for Oct 2017 loans

Now that we know the amount of principal that is still paying interest and the amount that has defaulted, we should find out what the average loan duration was.

If the loans are relatively fresh and passed only a small portion of their loan duration, it will be more difficult to estimate their return than for loans where loan periods have mostly ended.

We get this information from the loan dataset. For Oct 2017 the average loan duration is 43 months (double checked that weighted average is close with 44 months)

Year and MonthAverage Loan Duration

Time left until end of loan schedule

For Oct 2017 loans 30 months or 70% of loan duration has passed and on average one more year of payments is left based on initial schedules. Pretty good situation for making some rough estimates.

However, let’s be more optimistic and add another 0.5 years of interest payments to the situation just in case to take into account that outstanding loans are somewhat longer than average.

Note that loans could be rescheduled and end later than initially planned.

Step 4: Possible income from current loans

Now that we know the average loan duration left (roughly 1 year) and the outstanding current principal amount (€400,000), we can make some estimates on how much interest we could expect to receive from these loans.

This is the place where you have to open up the dataset and look for the average interest rate for loans issued in Oct 2017. For the loans that are less than 60 days overdue, the unweighted average interest rate is 35.6%. Let’s round it up to 36%.

Considering that on average loans have 1 year to go, we can make a very rough calculation that a €400,000 portfolio will earn 36% interest or €144,000 in interest payments. The additional 0.5 years will add another €72,000.

So, from current loans we can expect to receive a total of €616,000. This leaves us at a €616,000 – €1,100,000 = -€484,000 to reach breakeven point.

However, we have not accounted for recoveries yet. Let’s do that now.

NB! These calculations are overly optimistic. We assume that none of the loans will default. Some will almost certainly. We also assume that interest is paid on the whole principal amount, even though principal is actually repaid and thus reduced each month.

Step 5: Possible income from recoveries

We looked at recovery rates in my previous post here. So let’s open up the Cumulative recovery rate graph again.

cumulative recovery rate for Bondora defaulted loans
Cumulative recovery rate for defaulted Bondora loans.

Unfortunately this graph will not tell us exactly how much the loans issued in Oct 2017 have recovered. It only tells us how much loans have recovered based on the month they defaulted in.

However, we can make some estimates based on this graph (or again, you can get a more accurate figure from dataset).

For example, since Bondora made changes to recovery process sometime mid-2015 (including charging a 35% collection fee from investors) the recovery rates have peaked around 35%.

In addition, we can make a conservative estimate that all Oct 2017 loans defaulted in 2018 or later and see that they have recovered less than 20% so far.

Let’s be extra conservative and assume a 10% recovery rate so far to give Bondora a better chance to reach profitability here again. Let’s also assume that the loans will recover better than actual results show and reach the expected recovery rate of 42% (see the table in my previous post in the series).

This means that defaulted loans can still recover an additional 32%. With €1.4 million in defaults, we can thus optimistically expect to get €448,000 additional recoveries.

Profitability of Oct 2017 loans

With this final figure, we can calculate the possible profit from loans issued in Oct 2017 as follows:

€448,000 – €484,000 = -€36,000

In short, even with all of our optimistic estimates, we can expect investors to lose money on the loans issued in Oct 2017.

All optimistic estimates used:

  • Rounded down the needed amount to reach breakeven point by €23k.
  • Assumed that all loans under 60 days overdue will recover and continue paying interest.
  • Rounded up the current loans from €390k to €400k.
  • Rounded up defaulted amount from €1,38 million to €1,4 million to give us higher possible recovery amount.
  • Assumed 1,5 years of full interest payments on all current loans, even though principal is paid down monthly and some loans will default.
  • Rounded up interest rate to 36%.
  • Assumed that loans have recovered less than actual (10% vs 11% actually).
  • Expected loans to recover more than historical data suggests. 42% instead of roughly 35%.
  • Didn’t account for taxes.
  • Didn’t account for time value of money and alternative cost.

Simplified version

If the period you’re looking at is more than 5 years ago, then you can use a simplified method and only look at the cumulative cash on cash return graph.

Since maximum loan period is 5 years, then you can quite safely assume that any month before May 2015 that has not reached 100% as of today, is pretty much a loss for investors.

Some additional recovery could change the numbers somewhat, but this is already over so long time horizon that it’s relatively worthless.

In conclusion

It is relatively time consuming to find out possible returns for Bondora portfolio. However, you can do it relatively easily if you’re ok with rough estimates.

Considering the bad performance of Bondora’s portfolio, a rough estimate is often enough though. It doesn’t really matter too much what the annualized return will be if it’s going to be negative.

Well, it does matter if it’s your money that’s invested into those loans, but if you do these estimates before investing, you’re likely to not put your money into them in the first place.

Things get more complicated once we start reaching positive figures. Then we should look at annualized returns, but that’s a topic for another day.

For a practice run do the following:

  1. Pick a month from the Step 1 that’s not yet covered here or in the comments.
  2. Try to go through all the steps highlighted here and post your numbers and final results in the comments.
  3. You don’t have to be as optimistic in the estimates as I was. I was simply highlighting a point.

Alternative method

I’ve later discovered that there’s actually a pretty good graph for cash on cash returns on the Bondora statistics page. The Cumulative cash on cash return monthly comparison graph.

Cumulative cash on cash return monthly comparison graph
Only 60 month loans issued in 2013 and 2014 have offered a positive cash on cash return as of end of July 2020.

What makes it great, is that you can change whether you want to compare yearly, quarterly or monthly segments. You can also change the range and loan duration that you want to look at.

For example, there is not a single month where issued 36 month loans have given a positive return as of end of July 2020 (the graph only looks at periods where at least 200 loans were issued).

cumulative cash on cash return for 36 month loans on Bondora
36 month loans issued within one month have not ended up cash flow positive in even a single case so far.

Disclaimers: My investments on Bondora during 2010-2016 ended with a total annualized return above 28%. I worked at Bondora nearly 2 years and quit at the end of 2015, when it became clear that the company had chosen a path I did not want to participate in. I am not related to, employed by or compensated by any P2P company for writing these articles. Nor am I an owner of any P2P company (unless I own a tiny fraction through a global stock market index fund). This blog also generates no ad revenue and I have no English products to sell you here. You can’t even join a mailing list for English readers. I do have a Bondora referral link if you want the €5 bonus, but I don’t recommend investing your money there.

PS! If you find this kind of overview useful and would like to see more of these, let me know in the comments and/or show your support by helping me fund the hosting expenses and compensate for the time it takes to write and research these topics. I’ll consider writing more of these, if enough people get value from it.

By Taavi

Taavi has been investing into P2P-lending platforms since 2010.

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