Updated criteria for classifying lending companies

As part of our move from Mintos Risk Ratings to Mintos Risk Score, we have revised the criteria for default status and now want to share this to improve clarity around this.

There are three different statuses that can be given to a lending company on Mintos. These are:

Active: The lending company can place loans on the Primary and Secondary Market.

Suspended: The ability to place loans on both Markets may be stopped or restricted, although we anticipate that pending payments will be covered. It is possible for the suspension to be lifted at a later date.

Defaulted: The lending company is no longer able to place loans on the Primary Market and its issued loans are not available for trade on the Secondary Market. There’s an elevated risk of all payments of exposure not being repaid in full, yet not necessarily a full loss of funds for investors with investments in the loans issued by the defaulted lending company, or a loss for each and every investor.

Before we share the criteria for default status, we firstly want to restate the criteria for why a lending company on Mintos would be suspended.

What suspension means

Suspension of a particular lending company occurs due to the company failing to pass on borrowers’ repayments to investors and/or honor their buyback guarantee.

Once suspended, new investments into loans issued by a particular lending company cannot occur until the suspension is lifted. When the lending company is suspended on both the Primary and Secondary Market, this is to protect investors’ interests by preventing investments in new loans on the Primary Market, or the sale of existing loans issued by the respective lending company on the Secondary Market. By suspending a lending company on the Secondary Market, investors with less information about the lending company’s current status are also protected.

 Investors should note, that we may lift suspensions on the Secondary Market if we see that the initially identified situation highlighted by either the public or non-public information does not give sufficient doubt about the lending company’s ability to pass borrower’s repayments to investors and honor buyback obligations, or where a resolution is reached where it’s reasonable to expect the lending company to make further borrowers’ repayments transfers in the full amount. See more information on Secondary Market suspension lift here.

A suspension would usually happen before the lending company receives default status or in certain cases, at the same time. This means that while not all companies who are suspended are defaulted, all defaulted lending companies are suspended.

Updated criteria for default status

We have revised our criteria for default status based on Basel guidelines which are implemented in the EU by the Capital Requirements Regulation (CRR), to align the definition of default used by Mintos with one used in the financial industry as much as possible, while at the same time taking into account the cooperation between us and the lending company.

If a lending company on Mintos is given a default status, there are three possible criteria (one, or any combination of these) that would have led to this happening:

1)  Current estimated cash flows are not sufficient to cover full exposure

We evaluate whether the expected repayments from the underlying loans bought by investors – or in case of a buy-back guarantee, cash flows from the lending company’s overall portfolio and operations – is sufficient to cover the contractual payments to investors in full. In case we identify a shortfall in the necessary amounts for full recovery, we would assign default status irrespective of the size of the shortfall.

2) The lending company has declared bankruptcy or a process of insolvency is underway (including enforced liquidation) or the company is under legal protection

Because of third party involvement, such as an administrator or liquidator, there is an increased risk of the lending company not honoring the buyback guarantee or not passing on borrowers’ repayments in full, even if the current cash flow forecasts do not show this. The impact of these proceedings can vary based on each country’s specific legislation. For example, in one country, revocation of licence might allow the lending company to seek a voluntary wind-down and continue servicing loans and it would not fall under this criteria, while elsewhere, the same revocation would necessitate an obligatory wind-down by appointed administrator, meaning it would fall under this criteria.

3) A restructuring solution has not been achieved, within 180 days of suspension.

Based on our experience 180 days should be sufficient to reach a reasonable restructuring agreement with a distressed lending company. We consider a restructuring solution reached with the lending company even if a formal agreement has not yet been signed but payments are being made according to the plan.

As a result of changes in these definitions, the following previously suspended lending companies are now classified with a ‘defaulted’ status as per the above criteria:

 

 

Criteria 1: Insufficient cash flows

Criteria 2:
Under legal protection, bankruptcy or insolvency

Criteria 3: Restructuring agreement not reached within 180 days

 Capital Service

  X X

 Cashwagon (VN, PH, ID)

X    

 Finko UA

X    

 Getbucks ZM

X    

 ExpressCredit ZM

X    

 

What the revised criteria means

Even though a defaulted status indicates an elevated risk of exposure not being repaid in full, it does not necessarily mean a full loss of funds for investors with investments in the loans issued by these companies, or a loss for each and every investor.

We will continue to do our best to ensure the best recovery results for investors and expected recoveries for each case will be shared separately as long as this doesn’t interfere with our ability to recover the maximum amount possible.

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