How much cash is recovered in each stage of the process?

Welcome to our monthly blog post on the cash recovered in each stage of the collection process. We have tried to assign all recovery payments to a specific stage that was set closest to the payment date. Whilst this approach is not always correct in the case where recovery stages are not promptly updated, it gives a very good overview of the drivers behind recovery.

recovery-by-cash-flow-nov-2017

*Data for period from 1/10/2017 to 31/10/2017

Why is this important?

When looking at the table above, it shows how effective each stage of the process is at recovering cash owed to investors and can help you understand why some stages are more effective than others. If you haven’t already read our previous posts on the ‘3-step collection and recovery process’ and ‘A snapshot of the recovery process stages, where do the numbers currently stand?’, then we would recommend that you check them out first.

Why does the table show the largest amount of cash recovered in Estonia in the ‘Default & Court’ stage?

First three sub stages show more cash recovered in Estonia than Spain, Finland and Slovakia mostly because the total amount of loans in Estonia is higher than in Finland and Slovakia. However, this is also because of the success of the DCA’s in Estonia. In the future, we plan to have all cases automatically filed with the courts to improve the speed of the overall recoveries. In case the DCA’s are already working on a case and are delivering value we will continue to work with them. As it stands, only cases in Finland are automatically filed with the courts and this is why it shows the largest amount of cash recovered for Finnish loans at the bailiff stage.

Why is the bailiff stage crucial in the recovery process?

If you direct your attention the bailiff stage, it’s visible that once the bailiff has the ability to freeze the borrower’s income and assets this makes a significant impact on the amount of cash recovered. Ultimately, we aim to proceed to this stage as quickly as possible in order to begin generating a cash flow for investors.

What next?

Once all cases can automatically be filed to the courts, we expect the cash recovered in the bailiff stage, as well as in the third sub stage of Default & Court stage, to show the largest amounts across all countries. This is important because it means that we can start to generate a cash flow in a more time-efficient way for investors.

Next month, we will do a comparison of how the cash amounts recovered have changed and why.

A snapshot of the recovery process stages, where do the numbers currently stand?

Welcome to the start of our monthly overview of the recovery stages. Here, we’ll show you exactly how many loans are in each stage of the recovery process and going forward we can compare how it has changed from month to month. While we have tried to assign all loans to a specific stage as of the date of the report, the recovery stages are sometimes not promptly updated so individual loans may occasionally fall under incorrect stages.

recovery process stages

*Data as of 31/10/2017

Why is this important?

In case you missed our previous post, you might firstly find it useful to check out our 3 step collection and recovery process. This explains everything you need to know about each stage and sub stage you see above. Soon, we aim to improve the view and reporting on your Bondora account so you can see all the information about what stage your loan is at in the recovery process along with a reminder of what happens at each stage.

Why do Estonia and Spain have more cases waiting to be filed than Finland?

Thanks to access to technology and cooperation with local courts, we have been able to automatically file cases in Finland with more speed and efficiency than other countries. The success of this is also visible in the section showing how many of these cases are now with the bailiff. Going forward, we will soon have access to similar technology in Estonia, Spain and Slovakia which will allow us to progress each case to the bailiff stage at a more efficient rate.

Why is the bailiff stage important?

This is a critical step in the recovery process for a number of reasons, most importantly because the bailiff has the rights to freeze the debtor’s assets and accounts to cover the payments owed. Once successful, this stage is usually where a cash flow is generated and you will start to see payments come in to your Bondora account.

What next?

After we have implemented the changes to improve the ‘Default & Court’ phase, our next priority will be to improve the cooperation and data flow with the bailiff’s as we start to hand them more cases. It’s important that we get this right because it will help us get accurate updates on the progress that they are making with individual loans, in turn allowing us to update our investors with this information on a more regular basis.

Next month, we will do a comparison of how the cases have moved and why.

Average Recovery Rate for 2014 – 2017 is 47.2%

Welcome to our monthly blog post on the performance of recoveries, below we look at the percentage of principal and interest retrieved between 2014 – 2017.

Recovery-rates-2014-2017-Bondora

Why is 2017 showing the lowest recovery rate?

On first glance, this may appear to show that the success of our recoveries process has slightly decreased since 2014. However, it is important to note that the latest year will almost always show the lowest recovery rate. Quite simply, this is because the loan is moving through our 3-step collection process and is not yet generating a cash flow or has only recently started generating a cash flow.

What has changed?

Recently, we published a post covering our 3-step collection and recovery process which explains exactly what happens when a borrower stops making their payments. In Finland, once the borrower defaults the case is then automatically filed with the courts and this will soon be the same process in Estonia and Spain thanks to access to new technology.

Interested to learn more about recovery rates?

You can find more information related to our recovery process below:

 

Our 3-step collection and recovery process

While every step is taken to ensure all borrowers will make their repayments, from time to time they may unfortunately fall behind with their monthly commitments. This can be for a number of reasons, like losing their job or a significant change in their personal circumstances.

For when this happens, we have created a clear 3-step collection and recovery process where the bottom line is to secure the maximum amount of cash possible that is owed to an investor. We aim to reach step 3 as soon as possible because the bailiff has the rights to freeze the debtor’s assets and accounts to cover the payments owed.

Below, we break it down for you step by step*:

*Please note that all timelines referenced below can vary significantly between different borrowers, country and amount of debt outstanding and should only be used as estimates.

* * *

1. In-house collection – 1 – 74 days overdue

Regular reminders and information passed to debt registries.

Throughout this stage, the borrower receives reminders through email, text, postal letters and automated calls requesting they take immediate action. Meanwhile, we pass their information on to debt registries who also try to make contact with the borrower.

2. Default & Court – 75+ days overdue

Details passed to court, case automatically filed via payment order or civil claim.

When more than 74 days have passed with no payment received and if the amount overdue is larger than 2 monthly payments, then the loan is classed as in default*. In Finland, the case is then automatically filed with the courts and this will soon be the same process in Estonia and Spain thanks to access to new technology. Most commonly the case is filed via a payment order, however if this is unsuccessful then we will file a civil case. In a best case scenario, the process takes a minimum 4 months until a verdict is reached.

*If the overdue amount is less than 2 monthly payments, the loan is classed as in default after the payment schedule ends

3. Bailiff – 200+ days overdue

The Bailiff aims to retrieve payments owed from the borrower’s income and assets.

The case is handed over to a local bailiff after the court makes a favorable decision and the subsequent speed of recovery depends on the income and assets of the borrower. Bondora receives a quarterly update on the status of the collection.

Collection and recovery process glossary

Bailiff – Bailiffs have the rights to freeze debtor’s assets and accounts, they are also able to deduct payments from the debtor’s bank accounts to cover their payments owed. The borrower’s assets are those that are not pledged to a specific creditor (e.g. a property pledged under a mortgage agreement) and can be liquidated regardless of whether they were set up as collateral or not.

Court – This is the court in local residency of the borrower. For example, a borrower in Madrid will be filed with the local court where they reside in Madrid. There are some differences in the speed of how quickly loans that have defaulted are handled, depending on the country and constituency.

Debt collection agencies – Debt collection agencies (DCA’s) help us manage debt cases with the bottom line of restoring payments. They can be used in parallel with our in house recovery process where appropriate. In Finland, we automatically file all cases to court after the in-house collection process and this will soon be the same in Estonia and Spain. For existing cases that are successfully being recovered by DCA’s, there will be no change.

Payment order – This our first interaction with the courts and is a simple, fast and cost-effective process that accounts for the majority of our court cases. If the payment order does not bring any results or if the borrower objects to this, we then file a civil case.

Write-off – Either a partial or full amount of funds are written off when they are deemed unrecoverable. This can be in the case of death, debt restructuring, debt servicing costs or bankruptcy.

Rare cases

Bankruptcy & Debt Restructuring – The bankruptcy process is only initiated if the bailiff has not been able to collect the debt after freezing the borrower’s assets and accounts. Bondora either initiates this bankruptcy on its own or joins an existing bankruptcy filing. A distribution plan is then set up by the courts or bankruptcy registrar for the borrower’s assets and depending on the decision from the court, a new payment schedule is created for retrieving the principal. The court may also use debt restructuring to create a new payment plan for the debtor.

Civil case – In non-legal terms, this is where one person can sue another for not meeting the terms of a legal contract, i.e. paying back a loan. This is a more expensive process than a payment order as third parties such as lawyers will be involved.

Criminal – Very rarely, Bondora receives a notice about criminal proceedings related to the borrower. After an official notice is received from the authorities, the loan will be frozen and until the police finish their investigation and the case is ready to be sent to court. In criminal cases, it is extremely unlikely that any funds will be recovered.

Deceased – When a borrower dies with a loan outstanding, Bondora seeks to work with the executor of the borrower’s estate to secure repayments due. However, it may come to light that the estate may not contain sufficient assets to repay the obligation. In the event that no recovery is possible, the loan will be written off.

How to set up a recurring payment in Bondora

The video can also be watched in Estonian and in German. Click on the links to get to the videos.

***

As we are always looking for ways to better your investment experience on our platform, we are happy to introduce our recurring payment feature to you.

The feature gives you an edge as you can automatically make deposits on a weekly or monthly basis. It is absolutely free, saves time, has easy steps and of course safe to use.

So to set it up, simply login to your Dashboard, select the „Add funds“ tab from the left menu, select „Visa/Mastercard“, then enter your desired amount and recurring period, and there you go!

Performance of recovery process – September 2017

KEY TAKEAWAYS

  • Compared to August, the total average recoveries in each country have dipped slightly. However, the total average of all the countries combined is 42% only a nominal drop from the comparable 44% seen last month.
  • We have seen some spots of improvement as recovery efforts come to fruition. Estonia, for example, has seen a one percent improvement in the Q3 figures for 2016. Meanwhile, Finland saw mild improvement in Q4, 2016 and 2014 total average performance gaining one percentage point in both areas. Finally, Slovakia saw a one percent increase in recoveries in Q1 of this year.
  • Lacking improvement in recoveries may come from the possibility that recovery from these loans are nearing their maximum potential. For example, the total average figures for 2014, 2015, 2016 and 2017, so far are all comparable at 44%, 48%, 40% and 42% respectively.

PRINCIPAL RECOVERY RATES ACROSS MARKETS

Despite the drop in recovery rates in recent quarters the overall recoveries over the last several years is stable between 40% and 48%. Moreover, the transparency of the Bondora interface gives investors the tools necessary to make informed decisions about risk.

Quarter 2014 Q1 2014 Q2 2014 Q3 2014 Q4 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q4 2017 Q1 2017 Q2
Estonia 53% 66% 72% 72% 95% 68% 47% 55% 54% 67% 68% 61% 47% 49%
Finland 41% 60% 36% 53% 59% 54% 20% 20% 30% 51% 60% 35% 38% 73%
Spain N/A 17% 18% 20% 29% 25% 26% 30% 24% 51% 28% 12% 18% 37%
Slovakia N/A N/A 4% 8% 24% 11% 50% 34% 70% 121% 15% 28% 11% ND

You can find additional related information about the recovery process from these articles:

 

Performance of recovery process – August 2017

KEY TAKEAWAYS

total-recovery-rates-august-2017

  • Q2 of 2017 gave a small boost to average recovery rates for past year in both Finland and Spain. From Q2 of 2016 to Q2 of 2017, the average recovery For Finland was 59% and for Spain 32%.
  • Estonias recoveries have been very stable once again. Average recovery for 2015 dipped one percent to 67% but otherwise the recoveries are on the same level as month ago.
  • Slovakias total average recoveries saw a decrease again, dipping to 39% from 42%.

PRINCIPAL RECOVERY RATES ACROSS MARKETS

Recoveries in all countries have seen stretches of decreased recoveries aswell as some periods of increases but overall trends still remain quite stable. As a result the overall recoveries across years fluctuate within few percentage points. Estonia, Finland and Spain have all been keeping a rather stable trends for average total recoveries, with Estonia hovering around 65%, Finland 44% and Spain 27%. Principal recoveries from Slovakia have been the most volatile of the group due to much smaller principal amounts involved. The latest recovery rate dip for Slovakia was mostly the result of larger recovery decreases from 2016 loans. The total average recovery for Slovakia still hangs around 40%.

Quarter 2014 Q1 2014 Q2 2014 Q3 2014 Q4 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q4 2017 Q1 2017 Q2
Estonia 53% 66% 72% 72% 97% 68% 47% 55% 55% 66% 67% 64% 49% 59%%
Finland 41% 60% 35% 53% 61% 59% 19% 20% 30% 53% 62% 34% 45% 100%
Spain N/A 17% 18% 19% 29% 26% 27% 32% 25% 56% 30% 13% 20% 40%
Slovakia N/A N/A 4% 8% 25% 11% 50% 38% 73% 131% 16% 33% 10% ND

You can find additional related information about the recovery process from these articles:

 

Performance of recovery process – July 2017

KEY TAKEAWAYS

bondora-recovery-rate-july-2017

  • Finland experienced a mild increase in past year average recovery performance moving up to 47% from 45% last month.
  • Other performance changes were mostly mild with the average across all countries dropping to 49% from 52%.
  • Slovakia saw the largest drop in performance dipping down to 57% from 75% as seen in last month’s measurement.
  • The larger trend remains positive. Total average recoveries for 2016 to date of 49% still hover above those of 2014 and 2015.

PRINCIPAL RECOVERY RATES ACROSS MARKETS

Estonia, Finland and Spain all continue to exhibit relatively stable recoveries as seen by their low standard deviation since Q1 of 2015. For example, the total 2016 averages for each country have not moved more than 6 percentage points since last month. Moreover, for 2017 the total past year averages for Estonia, Finland and Spain have not dropped more than 3 percentage points. The one exception to this characteristic is Slovakia with a drop of 18 percentage points. Higher recovery fluctuations  for Slovakia mostly stem from the fact that the total recovery transaction amounts are significantly smaller and thus changes have greater effect on the recovery rates. However, it’s still possible that the 2015 to 2016 increasing trend of recoveries for the country will continue as 2017 matures.

Quarter 2014 Q1 2014 Q2 2014 Q3 2014 Q4 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q4 2017 Q1
Estonia 53% 67% 73% 74% 98% 70% 47% 56% 52% 68% 69% 64%  52%
Finland 40% 61% 36% 54% 62% 57% 18% 20% 30% 51% 66% 34%  55%
Spain N/A 18% 18% 19% 30% 27% 28% 33% 27% 59% 32% 13%  24%
Slovakia N/A N/A 4% 9% 27% 12% 50% 41% 77% 146% 20% 34%  9%

You can find additional related information about the recovery process from these articles:

 

Performance of recovery process – June 2017

KEY TAKEAWAYS

Recovery rates total average - June 2017

  • During the past month, Estonia, Finland, Spain and Slovakia all experienced modest declines in recovery performance relative to the previous month. However, the only country to drop more than three percentage points was Slovakia which is still strong with an average recovery for 2016 of 75%.
  • The positive story is the long-term trend. Finland, Spain and Slovakia have all seen increases in recovery performance relative to their 2015 averages. The clearest example of this increase is seen with Slovakia where average recovery rates have increased by 41 percentage points between 2015 and 2016.
  • The total country average of 56% for 2016 indicates a strong trend relative to a total average of 47% over the period ranging from 2014 to 2016.

PRINCIPAL RECOVERY RATES ACROSS MARKETS

Finland, Spain and Slovakia are holding steady with 2016 average recovery rates that are at their highest since 2014. Meanwhile, Estonia has dropped in 2016 by two percentage points below its total average. The total average recovery across all markets is the highest in 2016 of any other total year average. Total average recovery rate for 2016 was 56%, while 2014 and 2015 averages were 42% ad 43% respectively. Across all countries 2016 has exhibited a cumulative of eleven quarters of improved performance relative to the preceding quarter. This figure outnumbers the total number of declining quarters. We’re continuing to focus on improving recoveries to ensure stronger investor returns.

Quarter 2014 Q1 2014 Q2 2014 Q3 2014 Q4 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q4 2017 Q1
Estonia 53% 67% 73% 74% 100% 71% 47% 55% 53% 67% 72% 68%  59%
Finland 40% 62% 36% 54% 64% 60% 16% 19% 29% 53% 72% 38%  33%
Spain N/A 18% 18% 19% 31% 27% 29% 35% 27% 63% 34% 15%  26%
Slovakia N/A N/A 4% 9% 28% 12% 52% 45% 80% 159% 22% 39%  ND

You can find additional related information about the recovery process from these articles:

 

Performance of recovery process – May 2017

KEY TAKEAWAYS

Total average recovery rates May 2017

  • The average recovery rates in Finland, Spain and Slovakia are all higher in 2016 compared to their 2015 figures.
  • Slovakia continues its successful recovery with an average 2016 recovery rate of 84% compared to just 36% in 2015. Moreover, this strong trend is holding steady as previous months have shown similar results.
  • Estonia continues to experience a slight down trend. The average recovery rate was 74%, 69% and 66% in 2014, 2015 and 2016 respectively.
  • Improvements in Finland, Spain and especially Slovakia have all helped raise the total average recoveries among all countries for three consecutive years.

PRINCIPAL RECOVERY RATES ACROSS MARKETS

As the Bondora platform has developed we’ve enacted more stringent collection strategies. For example, we hand over the overdue loan cases to debt collection agents just one week after the borrower misses a payment. Additionally to in-house debt collection, our partnerships with external debt collection agencies and legal entities in Estonia, Finland and Spain have all helped us track down debtors more efficiently. We believe these reinvigorated efforts will yield improving results over time. In fact, we initiated many of these practices in 2016 which may explain the total improved recovery averages jumping from 44% to nearly 60% from 2015 to 2016.

Quarter 2014 Q1 2014 Q2 2014 Q3 2014 Q4 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q4
Estonia 53% 68% 74% 76% 102% 72% 47% 55% 54% 70% 72% 66%
Finland 41% 63% 37% 55% 66% 60% 15% 21% 30% 56% 72% 46%
Spain N/A 18% 18% 19% 30% 26% 29% 34% 28% 67% 35% 16%
Slovakia N/A N/A 4% 9% 29% 13% 55% 48% 80% 179% 25% 51%

You can find additional related information about the recovery process from these articles: