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Assetz Capital Provision Fund To Pay Out For First Time
For the first time, Assetz Capital is going to declare losses on some loans, it has told 4thWay.
In other words, it's writing off bad debts that it sees no prospect of recovering in full.
Its reserve funds – which it collectively calls “provision fund” – are going to pay for those losses.
Assetz Capital has not told us which bad loans it is going to transfer to the provision fund or how much debt is being written off. However most outstanding bad loans still have good prospects of recovery.
To be clear, these are not the first loans to go late or bad. Assetz Capital has had its share of those – and they are to be expected.
It is just that this is the first time that Assetz has taken this step, showing it doesn't expect to recover all loans and interest in full.
While Assetz says that this is the reserve funds have never been used, I think the situation is not quite that straightforward for all of its lending accounts…
What happens when an Assetz loan goes bad?
When one of your loans is late or goes bad at Assetz Capital, how this affects you varies based on which lending account(s) you're using:
Great British Business, Green Energy Income and Property Secured Investment accounts
With the Great British Business, Green Energy Income and Property Secured Investment accounts, you receive interest payments and loan repayments when the borrower makes them.
Your payments are delayed if the borrower is late or suffers difficulties.
If you want to leave these lending accounts early by selling your loans before they are fully repaid by the borrower, your proportion of any outstanding bad debt is frozen.
Your money is unfrozen and you start earning interest and receiving repayments again when:
- The borrower finds some cash to pay up.
- The bad debt is recovered, which typically will mean repossessing and selling the borrower's property and business possessions. Assetz Capital focuses intensely on ensuring that is quality property and assets that are worth more than the loan itself.
- Finally, your money is unfrozen with a payout from the provision fund if Assetz Capital accepts that it is unable to fully recover all interest and loan amounts due.
These three accounts all spread your money automatically across many loans and also have the top 4thWay PLUS Rating of 5/5. The property lending account pays 5.64% and the other two accounts pay 7.23%, assuming you re-lend the interest you receive**. See our peer-to-peer lending comparison tables for more details.
Manual Loan Investment Account
In terms of how bad debts are handled, the Manual Loan Investment Account is by far the simplest account.
You earn interest when the borrower pays it and receive loan repayments when they come in. You cannot sell loans that go bad. This account is the only one with no reserve fund of any kind.
This is why you're able to earn a lot more interest with this account than all the others.
This account also has a 5/5 4thWay PLUS Rating, and you can earn between 5.5% and 15% on your loans. See our peer-to-peer lending comparison tables for more details.
Quick Access and 30-Day Access accounts
Regarding bad debts, these two accounts work differently again.
Assetz Capital wrote to us that it puts in extra “ringfenced” cash in the Quick Access and 30-Day Access accounts to enable you to sell loans early – even loans that have gone bad. It also uses this ringfenced cash to pay interest and meet repayments when loans are late or being recovered.
In other words, lenders using these accounts don't have to wait until Assetz writes off the bad debt or recovers it before getting their money, provided there is enough ringfenced cash.
Here's where it gets slightly confusing. Assetz is not calling this segregated cash its “provision fund” or allocating the cost to it, yet the cash is being held by its separate entity, “Assetz Capital Provision Funding Limited”.
This is an interesting point. The question is, if these payments are being made from a segregated pot, is this not simply an extension of the provision funds for these two lending accounts? Kind of a pre-provision fund fund? I would say that it is.
In that sense, Assetz Capital has already used its provision fund to support Quick Access and 30-Day Access account holders. Indeed, most reserve funds at other peer-to-peer lending sites pay out immediately too. But doing it this way has enabled Assetz to keep saying that it has not used the reserve funds up to this point.
We don't know how much money is available in that extra pot or how much has already been used. However, I would not consider this extra pot to be a permanent benefit. For the time being, it makes sense to assume that losses covered by ringfenced cash will ultimately be limited to the declared size of its “proper” provision funds.
These two accounts all spread your money automatically across many loans. The Quick Access Account is unrated and pays 3.82%, assuming you re-lend the interest you receive**. The 30-Day Account pays 4.33% and has a highly creditable 3/5 4thWay PLUS Rating. See our peer-to-peer lending comparison tables for more details.
Declared provision funds
|Lending account||Expected losses based on Bank of England stress tests||Provision fund loss cover at 3 x expected losses|
|Quick Access & 30-Day Access||0.43%||1.29%|
|Great British Business||0.39%||1.17%|
|Green Energy Income||0.08%||0.24%|
Assetz Capital has not yet revealed the amount in the provision fund for the Property Secured Investment Account, which was launched in July 2017.
Note that 4thWay does harsher stress tests that find far higher potential losses than these Bank of England tests. However, our results show that losses are still well contained.
4thWay's Assetz Capital Quick Expert Review.
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**We adjust Assetz Capital's interest rates so that they are calculated the way that most P2P lending sites (and other investments) are calculated - which makes much more sense. That's why rates here look slightly higher than on Assetz's own website.