Couple of weeks ago Bondora posted on their blog the company 2019 results. As far as I know, it was the first time they disclosed G&G historic return and my mind started to spin.
I opened my account with them almost six years ago; all the scepticism I have on the platform is mainly due to the fact that I have an hard time to reconcile my returns with the one they so often advertise. I started investing in Bondora with a pure passive approach, via a Conservative profile on Portfolio Manager. Bondora put together my portfolio and my expectation was to receive their median return, adjusted by the rating weights, no more no less (obviously allowing for some standard deviation). If I diversify enough the loans in my portfolio and I stay on course for years, without trading my positions in and out, there is no reason why my returns should materially diverge from their total return; it is like picking 100 random stocks out of the S&P500, I might not get the index return but unless I am extremely unlucky (or lucky), over the long term I should get close to the index return.
I started to get suspicious when they first (2016?) changed their accounting practice: when a borrower was more than three months in arrears with a payment, instead of flagging the whole residual loan amount as defaulted Bondora was counting only the accrued part up to that point. I bet not even Ernst&Young, Wirecard accounting firm, will ok this practice. In fact, look how Bondora accounts for its own receivable (taken from their financial results):
I started to get REALLY suspicious when I saw that some months all the loan I invested in went into default, all of them. There can be only three reasons:
- I am unlucky AF
- Bondora process is not passive but they are passing me only their crappiest loans (keeping the good one for them? for the CEOs uncle? for their favourite bloggers?)
- Bondora advertised returns are a lie
Look at below returns, taken from Bondora itself: from 2015 until 2017, there is not a single quarter when their return got above 10%…but still G&G historic return is 10.7%?
“yes but look at 2018 and 2019” you might say. Well, above returns were taken from their April 2020 blog post. Here the same returns in their May 2020 post:
Recent returns are so high not because their credit model suddenly got better but because of their questionable accounting policy: it takes time to show the ‘real’ loan performance. In fact, notice that every Q return went down after only a month. Wanna bet how this figures will look in one year time?
But let’s dig deeper. Bondora publishes details on historical returns for each rating classes starting from 2015; performance charts by country are broken down by the number of loan issuances over the given period, with Orange representing < 50 loans, Blue 51-200, and White > 200. Here the averages I calculated for the period 2015Q1 until 2019Q2:
| A | AA | B | C | D | E | F | |
| White Only | 7.57 | 5.86 | 8.21 | 10.34 | 4.58 | 14.41 | 14.99 |
| White + Blue | 7.42 | 1.81 | 3.10 | 5.37 | 7.31 | 4.73 | 11.18 |
| White + Blue + Orange | 2.36 | 2.87 | -12.31 | 2.04 | 1.93 | 8.31 | 11.58 |
The White Only category should be the relevant one for Bondora as a whole, since it reflects the majority of loans, but I decided to include the others as well to show that if you are a ‘pioneer’ investor in non-white, non-established categories your returns can be even worse.
We also have the rating distribution of loans within the G&G portfolio:
This rating distribution is not static but we can use it as a proxy to get a better estimate for the G&G portfolio. If we combine the two tables, our G&G portfolio-proxy should have returned 10.18% per year from 2015 until mid-2019 if it invested in White Only loans (6.42% for White + Blue and 5.52% for all categories).
We also have a portfolio distribution by Country:
If we include these additional data, our G&G portfolio-proxy should have returned 8.97% per year from 2015 until mid-2019 if it invested in White Only loans (7.68% for White + Blue and 7.41% for all categories). 8.97% is not the 10.7% return they advertise but is a good number, definitely higher than my initial expectations and way higher than the 3.35% real return I got from Bondora since 2015. My ‘issue’ is that our figure is heavily influenced by a small subset of loans: E and F loans issued from 2018 onward. If 2018 and 2019 returns decay the same way they did in previous years, that number is poised to be revised lower. We also have two categories that are performing close to target but other five (AA, A, B, C, D) that are not doing great: I do not think this is a good sign of robustness for Bondora credit model. Look how their origination swings, this is March 2020:
and June 2019:
In the last two years Finland issued (basically) only E and F loans, which looks great from our analysis; what are Finland historical returns? 2013: 3.4%, 2014: 0.9%, 2015: -2.5%, 2016: -0.4%, 2017: -2.8%. Estonian loan returns are the most balanced and consistent but they also slumped in 2015 – 2017, I am curious to see if their recent performance pick-up is not due to Bondora creative accounting.
As a conclusion, this exercise brought me more questions than answers but I think is always informative to try to look into their ‘black box’. As I wrote in the past, my goal is to achieve at least a double digit return when I invest in p2p, the fact that G&G is capped at 6.75% makes it not an optimal choice for me anyway. There might be some pockets where Bondora investors can get that type of return, I am not yet sure their credit process is robust enough to generate 10%+ returns on a consistent basis.
What I am reading now:
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