Download to read offline
2016 ANNUAL LOAN DEFAULT REPORT
- 1. 2016 ANNUAL LOANDEFAULT REPORT Loan Default Report 2016 By: Steve Baland and Johann Gerdts
- 2. 2016 ANNUAL LOANDEFAULT REPORT 2 - This report is intended to analyse risk and default tendency within members. We will compare members who have taken out a loan between 01.04.2015 -31.03.2016 and are 13-52 weeks in arrears, and will be compared to ALL members who took out a loan between 01.04.2015 and 31.03.2016. Purpose: The aim of this report is to identify members who are most likely to default on their loans. Establish a framework to minimise lending to high-risk members Create analytical criteria that will be used to carry out future loan default reviews. Key Data and Background Information: For the purpose of this analysis the following statistical data and reports were used: 2015 Annual Loan Default Report (2015-16) Key Commercial Performance Indicators (2015-16) KSPIs End of Mar 2016 Loans Report to End Mar 2016 v1 Bad Debt Report End of March 2016 Categories and criteria of the loan default report: The following categories were used to evaluate defaulted borrowers to identify characteristics and trends of high-risk defaulters: 1) Age 2) Gender 3) Housing type 4) Loan History 5) Loan Products 6) Outstanding Loan Amount 7) Length of Membership 8) Repayment Frequency 9) Income and Repayment Method Defaulted Borrowers and the Total Loan Book £135,571 2% £6,602,565 98% Total Loan Book Balance Defaulted Loans Good Loans 230 4% 5,458 96% Total Number of Borrowers During 2015-2016 Members in Arrears Other Borrowers
- 3. 2016 ANNUAL LOANDEFAULT REPORT 3 618 11% 1173 22% 1262 24% 1400 26% 691 13% 210 4% All borrowers Sum of 18-25 Sum of 26-35 Sum of 36-45 Sum of 46-55 Sum of 56-65 Sum of 65+ The total number of loans issued during 2015-2016 was 5,458. Of these, 231 members defaulted on their loans representing 4% of all borrowers of the same period. 1. Age Findings and analysis High-risk borrowers: 26-35, 36-46 and 46-55, respectively. Lower-risk borrowers: 18-25 and 65+ Big picture: majority of borrowers come from the 46-55, 36-45 and 26-35 age groups. When comparing all members in arrears to the rest of the borrowers in the sample size, we can see that a higher proportion of members who range from ages 26-35 years old are more likely to fall arrears. We consider the fact that they have a higher default rate but make a smaller number of borrowers out of the three most active age groups. In conclusion, while it was expected that members from the larges age groups were expected to constitute the greater number of defaulted loans, a closer analysis showed that 26-35 year old members have a higher likely hood to fall into arrears out of the other age groups. DefaultedBorrowers All Borrowers Proportion of Defaulted Borrowers to All Borrowers Number Percentage Number Percentage Default percentage Age 18-25 21 4.0 618 11.0 3.40 26-35 150 31.0 1173 22.0 12.79 36-45 128 27.0 1262 24.0 10.14 46-55 119 25.0 1400 26.0 8.50 56-65 45 9.0 691 13.0 6.51 65+ 19 4.0 210 4.0 9.05
- 4. 2016 ANNUAL LOANDEFAULT REPORT 4 2. Gender DefaultedBorrowers All Borrowers Proportion of Defaulted Borrowers to All Borrowers Number Percentage Number Percentage Default percentage Gender M 89 39 2161 40 4.12 F 142 61 3230 60 4.40 Findings and analysis High-risk borrowers: No trend identified Lower-risk borrowers: No trend identified Big picture: No gender correlation between defaulters and other borrowers Based on the defaulted borrowers study both genders default in equal proportion. Although as section 9 – Income and Repayment Method shows, members who repaid their loans through Child Benefits (mostly females) tended to go into arrears less than other borrowers. In conclusion, while our research did not show that either gender had a higher risk of default, women tended to be more active borrowers and naturally represent a higher number of members in arrears. On the other hand, borrowers on child benefits defaulted less often than other borrowers. This could signal that loan applicants with children who received CHB are much safer borrowers due to the standard recurring payment. 142 61% 89 39% Defaulted borrowers F M 3260 60% 2161 40% All borrowers F M
- 5. 2016 ANNUAL LOANDEFAULT REPORT 5 3. Housing Type DefaultedBorrowers All Borrowers Proportion of Defaulted Borrowers to All Borrowers Number Percentage Number Percentage Default percentage Housing Type Unk 72 31 1952 39 3.69 Council Tenant 53 23 932 14 5.69 Pivate Tenant 35 15 624 12 5.61 Housing Assoc 34 15 543 10 6.26 Other 29 13 1036 19 2.80 Home Owner 8 3 333 6 2.40 Findings and analysis High-risk borrowers: Undisclosed and Council Tenants Lower-risk borrowers: Other and Home Owners Big picture: home owners are less likely to pose a risk, due to the stability and reassurance of their assets According to our findings, the riskiest groups of borrows tend to be members who do not declare accommodation type and those that live in council housing. At the same time, Home Owners and Other Housing members (e.g. living with parents) tend to default less, that other members who went into arrears. Conducive to our findings within the 2015-16 period, members who chose to state their resident status as unknown, as well as those who mark other, are more likely to pose a higher risk, and default on their loans. 72 31% 53 23% 35 15% 34 15% 29 13% 8 3% Defaulted borrowers Unknown Council Tenant Private Tenant Housing association 932 17% 1 0% 333 6% 543 10% 1035 19% 1 0% 624 12% 1952 36% All borrowers Council Tenant Family/Friends Home Owner Housing association
- 6. 2016 ANNUAL LOANDEFAULT REPORT 6 4. Loan History – First-time borrowers DefaultedBorrowers All Borrowers Proportion of Defaulted Borrowers to All Borrowers Number Percentage Number Percentage Default percentage Loan History New Members 31 13 3033 56 1.02 Existing Members 200 87 2388 44 8.38 Findings and analysis High-risk borrowers: existing members Lower-risk borrowers: new members Big picture: New members showed to default far less often than existing members According to the findings of this report, existing members (87%) are more likely to go into arrears than first time borrowers (13%). However, when comparing both sample sets, we cannot conclude that either new members or existing members pose a higher risk than each other. 31 13% 200 87% Defaultedborrowers New members Existing members 3033 56% 2388 44% All borrowers New members Existing members
- 7. 2016 ANNUAL LOANDEFAULT REPORT 7 5. Loan Products DefaultedBorrowers All Borrowers Proportion of Defaulted Borrowers to All Borrowers Number Percentage Number Percentage Default percentage Loan Types L1 SaverLoan 119 52 3199 62 3.7 ISL InstantSaver Loan 69 30 962 18 7.2 FL Flexi Loan 35 15 723 14 4.8 SL SecuredLoan 1 0 297 6 0.3 Findings and analysis High-risk borrowers: Saver and Instant Saver Loan borrowers Lower-risk borrowers: Security Loan, Credit Builder Loan and Flexi Loan borrowers Big picture: It was expected that the majority of loans defaulted on stemmed from our most popular loans, which are the saver and instant saver. Based on the analysis of last year’s defaulted borrowers, the majority of people who went into arrears were the members that took out either Saver Loans (52%) or Instant Saver Loans (30%). This is indicative that people are mostly struggling to repay higher value loans. The safest borrowers, on the other hand, tended to be people who borrowed lower amounts through Flexi Loans (15%) and those that borrowed against their existing savings (>1%). Both sets of data show that Saver and Instant saver loans pose a higher risk, and default rate. However, both loan categories are the most popular with members. Therefore data shows that these loans have a higher default rate, but only because they are our most popular. 119 52%69 30% 35 15% 4 2% 3 1% 1 0% Defaultedborrowers L1 ISL FL CB SUSPL SL 3065 56% 1609 30% 307 6% 251 5%183 3% 4 0% 2 0% All borrowers Other L1 ISL FL SL SUSPL
- 8. 2016 ANNUAL LOANDEFAULT REPORT 8 6. Outstanding Loan Amounts DefaultedBorrowers All Borrowers Proportion of Defaulted Borrowers to All Borrowers Number Percentage Number Percentage Default percentage Outstanding LoanAmounts at Time of Default £0-600 96 42 3539 65 2.71 £601-1000 44 19 288 6 15.28 £1001- 5000 86 37 1369 25 6.28 £5001- 10000 4 2 179 3 2.23 £10001- 15000 1 0 38 1 2.63 £15000+ 0 0 10 1 0.00 Findings and analysis High-risk borrowers: members who defaulted on £0-600 or £1,001-5,000 amounts Lower-risk borrowers: members who borrowed larger sums, over £5,001 pounds Big picture: The majority of defaulted loans occurred within the largest loan amounts category. The 2015-16 defaulted borrowers analysis demonstrates that members most struggle with repaying amounts that are in the ranges of £0-600 and £1,001-5000. This, at first glance would indicate that 42% of Flexi Loan borrowers are defaulting. However, if we take the date from Section 7, Loan Products, we can see that Flexi Loan borrowers are fairly safe borrowers. All of this points to the fact that actually it’s the Saver and Instant Saver Loans that are defaulting towards the end of their loan terms. A fact supported by the data above, which shows that 37% of the borrowers defaulted on amounts ranging between £1,001 and £5,000. On the other hand, the safest borrowers tended to be those that borrowers over £5,000. This can partly be explained by the fact that Home Owners use their property as collateral and that larger value loans are taken out by people who are employed and use payroll deductions to repay their loans. 96 42% 44 19% 86 37% 4 2% 1 0% 0 0% Defaultedborrowers Sum of £0-600 Sum of £601- £1,000 Sum of £1,001- £5,000 Sum of £5,001- £10,000 3539 65%288 6% 1369 25% 179 3% 38 1% 10 0% All borrowers Sum of £0-600 Sum of £601- 1,000
- 9. 2016 ANNUAL LOANDEFAULT REPORT 9 7. Length of Membership DefaultedBorrowers All Borrowers Proportion of Defaulted Borrowers to All Borrowers Number Percentage Number Percentage Default percentage Lengthof Membership 0-1 Years 27 12 3050 56 0.89 1-2 Years 59 25 503 9 11.73 2-3 Years 49 21 575 11 8.52 3-4 Years 29 13 430 8 6.74 5-10 Years 59 26 760 14 7.76 10+ Years 8 3 117 2 6.84 Findings and analysis High-risk borrowers: members for 5-10, 1-2 and 2-3 years, respectively Lower-risk borrowers: members for 10+ and 0-1 years Big picture: First time borrows constitute over half of all borrows, but pose a lower default risk than existing members. This report revealed that there is no evident link between membership length and risk of default. For example, the riskiest borrowers come from both the group of people who have been with the credit union for 5-10 years (26%) and the people who members for only 1-2 years (25%). Likewise, the safest borrowers also came from the opposite sides of the spectrum, 10+ years (3%) and 0-1 years (12%). In conclusion, this cohort of defaulted borrowers indicates that other factors outside of membership length are responsible for members defaulting on their loans. 27 12% 59 25% 49 21% 29 13% 59 26% 8 3% Defaultedborrowers Sum of 0-1 Years Sum of 1-2 Years Sum of 2-3 Years Sum of 3-4 Years 3050 56% 503 9% 575 11% 430 8% 760 14% 117 2% All borrowers Sum of 0-1 Years Sum of 1-2 Years Sum of 2-3 Years Sum of 3-4 Years
- 10. 2016 ANNUAL LOANDEFAULT REPORT 10 8. Repayment Frequency DefaultedBorrowers All Borrowers Proportion of Defaulted Borrowers to All Borrowers Number Percentage Number Percentage Default percentage Repayment Frequency Monthly 195 84 1947 36 10.02 Weekly 30 13 386 7 7.77 Fortnightly 4 2 22 0 18.18 4-weekly 2 1 33 1 6.06 Findings and analysis High-risk borrowers: Monthly payers Lower-risk borrowers: Fortnightly and 4-weekly Big picture: Most members chose a repayment frequency of once a month, therefore monthly repayments make up the largest defaulted category. Conducive to our analysis of defaulted loans, those members who chose to repay monthly, tended to be riskier borrowers than those who were able to make more frequent payments. This indicates that members who repay more frequently are able to better manage their finances and not fall into arrears. 195, 84% 30, 13% 4, 2% 2, 1% Defaultedborrowers M W F UNK, 3040, 56% 4, 33, 1% F, 22, 0% M, 1947, 36% W, 386, 7% All borrowers 888 4 F M W
- 11. 2016 ANNUAL LOANDEFAULT REPORT 11 9. Income and Repayment Method DefaultedBorrowers All Borrowers Proportion of Defaulted Borrowers to All Borrowers Number Percentage Number Percentage Default percentage Income and Repayment Method SO 144 60 1277 19 11.28 PD 75 32 3687 55 2.03 CHB 19 8 465 7 4.09 Other 0 0 6 0 0.00 Findings and analysis High-risk borrowers: Standing Order payers Lower-risk borrowers: Child Benefits members Big picture: Majority of borrowers repaid their loans using payroll deductions, but members who defaulted mostly used a standing order method of payment. Our analysis shows that members who are repaying their loans via Standing Order (60%) are the likeliest to default on their loans. It must also be noted that a third of all the defaulters use Payroll Deduction (32%) – a category of members that are generally considered safer borrowers. Therefore, further investigation into which companies’ employees are the riskiest borrowers is highly advisable. In contrast, members whose primary source of income and repayment method is Child Benefits (8%) constituted fewest defaulters last year. These findings point to the fact that those members that have less control over their loan repayments, either through automatic Payroll Deduction or direct deposits from DWP, as is the case with Child Benefits, tended to default much less on average than those that managed their own repayments, such as the people who used Standing Orders. 144, 60% 75, 32% 19, 8% 0, 0% Defaultedborrowers Sum of Standing Order Sum of Payroll Sum of CHB Sum of Other 3687 55%1315 19% 1277 19% 465 7% 6 0% All borrowers Sum of Payroll Sum of Unknown Sum of Standing Order Sum of CHB
- 12. 2016 ANNUAL LOANDEFAULT REPORT 12 Bellow will appear a comparison of all loans issued between 01.04.2015 – 31.03.2016, and those loans that went into default during that period. Defaulted Borrowers 2015- 2016 All Borrowers Proportion of Defaulted Borrowers toAll Borrowers Numb er Percent age Nu mb er Perce ntage Ratio Age 18-25 21 4.0 618 11.0 3.40 26-35 150 31.0 1173 22.0 12.79 36-45 128 27.0 1262 24.0 10.14 46-55 119 25.0 1400 26.0 8.50 56-65 45 9.0 691 13.0 6.51 65+ 19 4.0 210 4.0 9.05 Gender M 89 39 2161 40 4.12 F 142 61 3230 60 4.40 Housing Type Unk 72 31 1952 39 3.69 Council Tenant 53 23 932 14 5.69 Private Tenant 35 15 624 12 5.61 HousingAssoc 34 15 543 10 6.26 Other 29 13 1036 19 2.80 Home Owner 8 3 333 6 2.40 Loan History NewMembers 31 13 3033 56 1.02 ExistingMembers 200 87 2388 44 8.38 Loan Types L1 SaverLoan 119 52 3199 62 3.7 ISL InstantSaverLoan 69 30 962 18 7.2 FL Flexi Loan 35 15 723 14 4.8 SL SecuredLoan 1 0 297 6 0.3
- 13. 2016 ANNUAL LOANDEFAULT REPORT 13 Outstanding Loan Amounts at Time of Default £0-600 96 42 3539 65 2.71 £601-1000 44 19 288 6 15.28 £1001-5000 86 37 1369 25 6.28 £5001-10000 4 2 179 3 2.23 £10001-15000 1 0 38 1 2.63 £15000+ 0 0 10 1 0.00 Repayment Frequency Monthly 195 84 1947 36 10.02 Weekly 30 13 386 7 7.77 Fortnightly 4 2 22 0 18.18 4-weekly 2 1 33 1 6.06 Income and Repayment Method SO 144 60 1277 19 11.28 PD 75 32 3687 55 2.03 CHB 19 8 465 7 4.09 Other 0 0 6 0 0.00 Lengthof Membership 0-1 Years 27 12 3050 56 0.89 1-2 Years 59 25 503 9 11.73 2-3 Years 49 21 575 11 8.52 3-4 Years 29 13 430 8 6.74 5-10 Years 59 26 760 14 7.76 10+ Years 8 3 117 2 6.84
- 14. 2016 ANNUAL LOANDEFAULT REPORT 14 Executive Summary This report has allowed us to achieve the three goals that were set out at the beginning of this report. We have been able to identify members who are most likely to default on their loans, established a framework to minimise lending to high-risk members, and have created analytical criteria that will be used to carry out on future loans. Concluding Remarks 4% of all members caused 100% of arrears by volume, which represents 2% of the total outstanding loan book. This research revealed categories of high-risk borrowers that can be used to asses future loan applicants High Risk Borrowers Age: 26-35 year old age group had the highest default rate Housing Type: Members who lived in housing associations defaulted more often Loan History: Existing members were likelier to fall into arrears Loan Type: £601-1000 outstanding loan amount had the highest default ratio Repayment Method: Standing order represented the highest risk Membership Length: 1-2 years membership posed the highest risk