{"id":437540,"date":"2025-05-27T11:18:59","date_gmt":"2025-05-27T08:18:59","guid":{"rendered":"https:\/\/bondora.com\/?p=437540"},"modified":"2025-05-28T13:01:54","modified_gmt":"2025-05-28T10:01:54","slug":"understanding-defaults-transparent-bondora","status":"publish","type":"post","link":"https:\/\/goandgrow.eu\/en\/blog\/understanding-defaults-transparent-bondora\/","title":{"rendered":"Understanding Defaults: A Transparent Look at Bondora Group’s Journey"},"content":{"rendered":"\n

Ever wondered what happens when a credit customer goes into default, doesn\u2019t repay their loan, and what that means for your returns? Well, today, that\u2019s exactly the topic we\u2019re diving into.<\/p>\n\n\n\n

As part of our investor community, you deserve clear, honest insights into how your money is performing, including when it comes to the more complex topic of defaults.<\/p>\n\n\n\n

Bondora Group is in its strongest position ever, with a clear strategy for continued growth. A key sign of that progress is the steady improvement in our default rate. But what does \u201cdefault\u201d actually mean? How do we measure it, and how does it relate to the health of our current portfolio and your investment?<\/strong><\/p>\n\n\n\n

Let\u2019s take a look behind the numbers.<\/p>\n\n\n\n

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What is a default?<\/strong><\/h2>\n\n\n\n

A loan is considered in default when payments are more than 90 days overdue, and the contract with the customer is terminated because the account is in arrears for an overdue period.<\/strong><\/p>\n\n\n\n

But a default doesn\u2019t mean money lost. It\u2019s the point where our recovery efforts begin, with the aim of recovering as much of the outstanding amount as possible. On average, in some countries, we\u2019re able to recover up to 70% of the defaulted amount, something we\u2019ll explore more in an upcoming blog post.<\/p>\n\n\n\n

It\u2019s vital to recognize that our goal is to treat every credit customer with respect and fairness throughout the recovery process. We understand that financial challenges can happen, and our recovery strategy balances responsible lending with compassionate debt management.<\/p>\n\n\n\n

To better understand the potential impact of defaults, we also examine Loss Given Default (LGD), which reflects the remaining loss after expected recoveries. This helps assess the portfolio\u2019s long-term health.<\/p>\n\n\n\n

<\/a>PD12: A key risk metric<\/strong><\/h2>\n\n\n\n

In a previous article<\/a>, we explained how we forecast our internal rate of return (IRR) and shared some key details. Now, we\u2019d like to go further by presenting our forecasted IRR over a more extended period and offering insights on PD12, a key metric used in IRR calculations.<\/p>\n\n\n\n

PD12 measures the actual default rate within 12 months of when a loan is issued. <\/strong>It acts as a leading indicator of credit risk and is a key factor in calculating our forecasted internal rate of return (IRR).<\/p>\n\n\n\n

We\u2019re encouraged to see that our PD12 results have steadily improved, reflecting better risk models and more thoughtful borrower evaluation.<\/p>\n\n\n\n

<\/a>A growing IRR spread<\/strong><\/h2>\n\n\n\n

Even when accounting for defaults and recoveries, our forecasted IRR continues to show a healthy spread above the 6% Go & Grow target return.Here\u2019s how that forecasted IRR has evolved over the past five years:<\/strong><\/p>\n\n\n\n

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*Forecast based on current loan performance and assumptions of the partial year\u2019s data.<\/em><\/p>\n\n\n\n

This spread has been steadily growing, reflecting improvements in credit risk control and the overall strength of the portfolio. These factors reinforce Bondora\u2019s ability to deliver two things you value greatly: stable, sustainable long-term returns and near-instant liquidity.<\/p>\n\n\n\n

<\/a>Portfolio overview<\/strong><\/h1>\n\n\n\n

The consolidation of Go & Grow, our flagship product, and the unique challenges of the COVID years shaped our current portfolio approach. Despite headwinds, like Finland\u2019s restrictive interest ceiling, we strengthened our underwriting models and refined our portfolio strategies.<\/p>\n\n\n\n

Bondora\u2019s evolution is a story of growth through learning. Challenges from earlier years have led to better systems, smarter risk models, and stronger performance. Lower default rates and a robust risk framework now define our operations.<\/p>\n\n\n\n

As our Chief Credit Officer Juris Rieksts-Rieksti\u0146\u0161 explains:<\/strong><\/p>\n\n\n\n

\u201cSince Q3 2023, we\u2019ve achieved our widest-ever spread between loan defaults and interest charged across all our markets, a clear win for credit risk control.\u201d<\/em><\/p>\n\n\n\n

A shining example of this adaptability is the Netherlands, where we reached high-performance risk metrics within just a few quarters. More on that below.<\/p>\n\n\n\n

<\/a>Market-specific performance trends<\/strong><\/h2>\n\n\n\n

Here\u2019s a snapshot of how our performance is evolving across key markets.<\/p>\n\n\n\n

Note: Q2 2024 stats will be available after Q2 2025, due to the required 12-month observation period to classify defaults accurately.<\/em>:<\/p>\n\n\n\n

<\/a>\ud83c\uddea\ud83c\uddea Estonia<\/strong><\/h3>\n\n\n\n