SaveLend 1st Scandinavian P2P Lending Company To Receive 4thWay PLUS Rating
Swedish P2P lending provider SaveLend, part of the stock-market listed SaveLend Group AB, has now received a 4thWay PLUS Rating, after an extensive assessment of its detailed loan data.
Lenders have been earning 8% to 9% after bad debts and fees over the past two years. They could expect to still earn perhaps half that much, on average, if they commit to lend and re-lend through two years that includes a major economic downturn and a property crash, where some distressed property sales are 55% below market value.
What types of lending does SaveLend offer?
Before going into more details about SaveLend's 4thWay PLUS Rating, I want to explain a little about its varied loan types.
One of SaveLend's strengths is the range of different types of lending, which can help lenders to reduce risks.
The two most important types of loans
Currently, the biggest lending segment through SaveLend is to support property developments, with the properties serving as security for lenders. The properties are mostly residential, but they can be commercial. SaveLend also arranges property lending to landlords of tenanted properties.
The second biggest lending segment is small personal loans. A profitable SaveLend subsidiary has committed to buying back all or most of any loan that turns bad from lenders. (Individual lenders can choose to take part in buying those bad debts.)
Other lending types through SaveLend
SaveLend also offers business loans to creditworthy small or medium-sized businesses lasting up to five years. Plus it offers invoice finance – or factoring – which means that businesses can borrow short-term, secured against outstanding customer invoices.
Kind of similar to invoice financing, it also offers import financing, which enables businesses to smooth out their cash flow by providing the money they need while they wait for goods to be imported. These goods could be materials needed by a manufacturer to handle seasonal demand from its customers, for example.
Finally, you can also lend in loans that have been sold into bad-debt collection. These loans are packaged up in a way where, across the basket of loans, you're still expected to get a good return for the discounted price paid for those bad debts.
Lenders should know that 4thWay hasn't yet been able to analyse SaveLend's business loans, invoicing, bad debt-collection or import financing loans. These collectively make up approximately 1/3 of the amounts lent on SaveLend.
More about SaveLend's 4thWay PLUS Rating
While I stated earlier that lenders might still earn around half their returns during what we call a 1-in-100-year downturn, you shouldn't interpret such forecasts as being precisely accurate.
For that very reason, the 4thWay PLUS Ratings are very conservatively calculated and build in a large margin of safety. This protects you from any wide variation from our central projection of results.
The point is that, if you were to lend in a basket of six or more similarly rated lending accounts, and across hundreds of loans, and keep lending for two years and until your borrowers repay you in full, you can strongly expect to come out with positive, satisfactory returns.
In particular, lenders should know that we haven't yet been able to analyse its business loans, invoicing, bad debt-collection or import financing loans. These collectively make up approximately 1/3 of the amounts lent on SaveLend.
SaveLend has so far been unable to supply us with data from older, obsolete loan types, as it says it's too much work to gather it and they're very different from loan types available to lenders today.
Those loans are certainly less relevant to SaveLend's current and future performance, but we'd still rather have been able to see how well it did on them.
SaveLend's 4thWay Risk Score
SaveLend's 4thWay Risk Score of 7/10 is in the normal range for quality platforms that have SaveLend's kind of loans and its depth of history so far.
a) The risk of bad debts in lending through SaveLend is lower than the risks in the stock market (which is in the scoring region of 8/10 to 10/10) and
b) Our assessment on the risk of bad debts will likely improve further, as SaveLend's loanbook continues to grow and mature.
This score means that lenders will expect to lose up 20% of the amounts they lent over two years in a severe recession or property crash, before taking into account interest earned.
(With interest included, overall returns are expected to be positive – as shown by the 4thWay PLUS Rating, which combines the risk of bad debts and the rewards in interest earned.)
It's currently most likely that SaveLend's 4thWay Risk Score will improve to approximately 5/10, as its full loan history deepens and matures over the coming months and years. More history allows 4thWay's specialists to be less conservative in underlying calculations, which are based on a more strict version of the Basel stress tests that global banks are required to do on their loans.
Higher 4thWay Risk Scores often mean more variable results for individual lenders, which means you should take steps to spread your money across as many loans as possible to reduce that risk.
A little more on what Savelend does
There's currently over SEK 1 billion (£80 million) being lent through SaveLend. Most lending is property lending and personal lending.
In a second, I want to cover a few different themes that my team and I have investigated in detail during the ratings process. But, firstly, here's just a little more about what SaveLend does for lenders.
The bulk of money lent through SaveLend goes to property loans starting from 150,000 Swedish krona (SEK), worth about €45,000, and up to SEK 60 million (€5.5 million).
Typically, lenders have been earning around 10.6%-11.2% per year after fees, although the rates are a bit higher for loans initially expected to be repaid within half a year.
SaveLend's property lending history still needs more time to mature. In particular, we're watching the high proportion of loans that get extended considerably beyond their initial deadline, to see what happens. We have assumed the worst on those in our ratings calculations.
Two-year personal loans
Personal lending contracted to last two years is the next largest lending segment.
Despite their multi-year loan terms, around half of these are paid off in six months or less, so you will need to keep re-lending regularly to sustain the annualised interest rates on offer. This is done for you through SaveLend's auto-lend feature.
These loans are for less than SEK 30,000, which is just a couple of thousand euros. But there are a lot of them.
You get buyback guarantees with these loans, meaning SaveLend will buy back most or all of any loan parts that suffer problems.
Starting during 2023, SaveLend's adjusting the deal for lenders on these loans in terms of the interest rates paid and the level of buyback guarantee. Our analysis, especially for the 4thWay PLUS Ratings, already assumes the new buyback guarantee levels.
Lenders now have the choice of lending at 8% interest rates (7.2%-7.6% after fees) in these loans and having a 100% buyback guarantee, or you can lend at 14% interest rates (12.6%-13.3% after fees) with an 80% buyback guarantee.
The latter case means that for every SEK 1,000 in an outstanding debt suffering problems, you'll get back SEK 800.
I'll come to whether the 8% or 14% deal is better later on.
5-6 month personal loans
Heading more towards payday-lending territory, we have loans of up to SEK 5,500 (€500). These are contracted to last five or six months but which are, on average, settled in 2.5 months.
These pay 38.4% annualised interest (34.6%-36.5% after fees) to lenders and come with an 80% buyback guarantee. The high rates are needed for lenders to cover new bad debts every two-and-a-half months, but they could still turn you an overall profit of around 10%+ after fees.
These loans are a very small part of the overall lending available through SaveLend – approximately 2% of outstanding loans. So you can expect to lend most of your money in other kinds of loans.
Understanding SaveLend's buyback loans and guarantee
Personal loans that fall late for payment are usually bought back with the idea that the company buying them back will still make a profit on them.
Typically, many of these loans are bought back long before they have turned into a genuine bad debt, meaning before the borrower is actually having persistent difficulties meeting payments.
Looking at settled personal loans with agreed terms of about two years, borrowers have repaid around 12,550 out of 15,500 loans. The remaining 2,950 were bought back, which is over 19% of the total.
The loans are bought by a SaveLend subsidiary called Billecta. Billecta then acts as debt-collection agency, although it has other products and services that pull in more revenue for it and make its business highly profitable.
Anecdotally, after the debts are chased and recovered, these loans make a modest additional profit at the level of guarantees available in 2023. This is especially good news, since lenders using SaveLend can re-lend in these bad debts, which are bundled together by Billecta and offered for sale separately to SaveLend lenders who want to take part.
Possibly a small advantage to the 8% lending rate with 100% buyback guarantee
Detailed loan data suggests that 8% lending rates with a 100% buyback guarantee is likely to be better for lenders than the 14% rate with 80% buyback guarantee. That's in conditions similar to those we've experienced in 2021 and 2022.
But the difference isn't necessarily going to be large. Clearly, SaveLend has balanced these deals well. It's reassuring that its assessment of what the difference in rates should be comes very closely to ours, even though we assessed it using a different method.
During a severe recession, the edge to the 8% rates is likely to increase further.
When buyback guarantees are involved, we make a third assessment, which is the one we used in our headline ratings assessment. Here, we assume that the buyback guarantees will fail at some point during a severe recession, meaning SaveLend and its subsidiary are not able to cover the guaranteed amounts in full.
We don't have any information that makes us expect that to happen with SaveLend, but we're just being typically cautious.
In this worst-case scenario, there's not much in it, but our assessment is that the 8% rates are still likely to have the edge for the average lender, although it's now much smaller.
However, 4thWay's assessments usually focus on whether lenders are getting a large margin of safety, which is the central premise of our ratings (and investment style) and allows for a lot more uncertainty. We believe you get a large margin of safety with either the 8% or 14% deal.
But finely guessing which of the two rates will work out more positively for lenders in tough business and economic conditions is extremely difficult, as there are a lot of variables.
In other words, I wouldn't go so far as to stake my reputation on the 8% rates performing better in a recession-plus-failed-guarantees combo.
Is SaveLend profitable?
SaveLend is one of the few P2P lending companies that is listed on the stock market, which gives us a huge amount of information about its financial health.
SaveLend's revenue for 2022 will probably be revealed to be roughly €12 million.
Its not yet profitable, but appears to be on a strong trajectory towards stable profitability and I currently expect it to get there sooner rather than later. I believe it has – or will have – the cash to make it to that destination.
What SaveLend's 4thWay PLUS Rating doesn't tell you
The 4thWay PLUS Ratings and 4thWay Risk Scores look at just one risk: the risk of bad debts in disaster years. There are other risks.
SaveLend is also increasingly offering loans in euros, and you can open accounts in krona, euros or both. 4thWay has not yet had a chance to assess its euro lending side, which is relatively new.
SaveLend has primarily offered lending in Swedish krona, so I want to give a special mention to this particular risk, as it's a less common one for most lenders and investors to face.
Unless your own currency is the Swedish krona, you can lose – or win – with movements in that currency compared to your own.
It's not so unusual for currency pairs to move 10% to 15% in less than 12 months. Depending on whether your currency rises or falls, it could double your returns or eliminate your gains.
To minimise currency risk (while also cutting your costs), see the section on currency risk in our risks guide.
A couple of points to bear in mind when lending
Two-year minimum, even in disaster periods
We always assume in calculating the 4thWay PLUS Ratings that you'll lend till borrowers repay you, and that you at least lend for a minimum of two years – by re-lending if necessary.
With SaveLend, in our ratings assessment, the minimum two years of re-lending through disaster years was absolutely necessary, to earn sufficient interest to cover the increased bad debts.
I have good expectations that this will become less necessary as its history develops further, and we can read and calculate its quality even better. But that's how it stands at present.
With two years of lending, sometimes it can be difficult to re-lend during disaster periods. I don't just mean psychologically. Sometimes, some providers are actually unable to get you enough new loans during those times.
What's key, though, is to keep lending through quality P2P providers, not necessarily the exact same ones. So, if you're unable to keep lending at some of your providers, you can switch more of your repaid money to others, and keep lending there.
Selling your loans early
As usual, you shouldn't expect to always be able to sell your loans early. Yes, SaveLend has a perfect record so far, but you absolutely, absolutely should not expect that to always be the case – at any P2P lending company.
Often, P2P lending markets for selling loans to other lenders work well. But they don't always work and that usually has nothing to do with how good the P2P lending provider is. In other words, it's not usually their fault.
When you have stable investments, like quality P2P loans offering routinely solid returns, the flip side is always that it can be harder to sell early. So, as with any P2P lending provider, be prepared to lend until borrowers repay naturally.
That's down to individual lenders. It's not on the P2P lending companies to guarantee you can always sell. It's simply the nature of good money lending.
In my figures above, I mention ranges of possible returns after fees. This is because the lending fees vary depending on how much you lend. Also, the cost of selling your loan parts on SaveLend varies as well:
|Lent amount in SEK||Lent amount in €||Lending fee||Resale fee|
|1.5 million+ SEK||€135,000+||6%||2%|
|3 million+ SEK||€270,000+||5%||2%|
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The 4thWay® PLUS Ratings are calculations developed by professional risk modellers (someone who models risks for the banks), experienced investors and a debt specialist from one of the major consultancy firms. They measure the interest you earn against the risk of suffering losses from borrowers being unable to repay their loans in scenarios up to a serious recession and a major property crash. The ratings assume you spread your money across hundreds or thousands of loans, and continue lending until all your loans are repaid. They assume you lend across 6-12 rated P2P lending accounts or IFISAs, and measure your overall performance across all of them, not against individual performances.
The 4thWay PLUS Ratings are calculated using objective criteria that can be measured and improved on over time, although no rating system is perfect. Read more about the 4thWay® PLUS Ratings.
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