Providers assessment
Bondster’s assessment of providers
Providers who offer loans on the platform Bondster are assessed to analyse their credit risk. The assessment of providers is carried out internally and then published on the website to achieve greater transparency and to inform investors on our platform.
The assessed provider is then assigned a mark on the scale ranging from “A+” to “D“, where A+ indicates the lowest level of risk with the highest ability of the provider to meet its obligations. The mark C- means that the provider faces a very high probability of default or other interruptions in its operation while a D means that the provider has already experienced a more significant delay in meeting its obligations.
Before a contract is concluded with a provider and it is published in the Providers section, the Risk Management Department performs an in-depth analysis. The aim is to make sure that the provider has good and transparent financial results and can meet its obligations to investors.
The assessment is based on several factors and reflects the strength of the buyback guarantee. The buyback guarantee strength is a reflection of the overall provider’s ability to meet its contractual obligations and liquidity requirements and that it has sufficient capital to fund its operation. If a provider does not offer the buyback guarantee, we advise investors to look at the risk of the loan in which they want to invest. The level of risk is associated with the ability of the borrower to repay their loan, not of the provider itself.
Invest List of providers
- Assessment Risk Level Description Degree
- Assessment A+ Risk Level Low Description The provider has the highest assessment and an extremely strong position to meet its financial obligations. Degree Investment
- Assessment A Risk Level Low Description The provider has a very strong ability to meet its financial obligations. Degree Investment
- Assessment A- Risk Level Low Description The provider has a strong ability to meet its obligations but is more prone to negative influences and economic events Degree Investment
- Assessment B+ Risk Level Medium Description The provider has sufficient ability to meet its obligations in the long run, however, unfavourable economic conditions may lead to weakening its ability to meet financial obligations. Degree Investment
- Assessment B Risk Level Medium Description The provider has sufficient ability to meet its obligations in the short run, however, unfavourable economic conditions may lead to weakening its ability to meet financial obligations. Degree Speculative
- Assessment B- Risk Level Medium Description The provider is currently fulfilling its financial obligations properly, however, unfavourable business, financial and economic conditions could lead to its disruption. Degree Speculative
- Assessment C+ Risk Level High Description The provider is more vulnerable and proper fulfilment of financial obligations requires favourable business, financial and economic conditions. Degree Speculative
- Assessment C Risk Level High Description The provider is very vulnerable and proper fulfilment of financial obligations requires very favourable business, financial and economic conditions. Degree Speculative
- Assessment C- Risk Level High Description The provider is very likely to default or experience other interruptions in its operations. Degree Speculative
- Assessment D Risk Level Default Description Default Degree Default
- Assessment NR Description Not rated
- Assessment WR Description Assessment withdrawn
How providers are assessed on Bondster
Before a provider appears on our platform, it must pass a thorough due diligence process. The process has several stages and begins with the gathering of information about the provider, based on which we then decide whether to cooperate with them or not. The first phase is AML and KYB, which is a crucial part of the assessment. If the provider passes this stage, we then move on to conduct different types of analyses. The assessment is the result of all the above stages, and can be summarized in the following points:
- AML (Anti-Money Laundering) & KYB (Know Your Business),
- Risk assessment
- financial analysis
- business profile analysis
- operating environment and other factors
- Monitoring and marks
AML & KYB
Within the AML (Anti-Money Laundering) and KYB (Know Your Business) screening, we conduct detailed inspections of companies and connected persons.
First, we check the company and its related parties in various global databases. We use specialized software connected to databases around the world, which allows us to carry out background checks even on companies based in Africa or South America.
Our main goal is to find out whether the company or its representatives are listed in sanctions registers or blacklists, for reasons such as fraudulent activities, money laundering or terrorist financing. The inspection takes place at the actual owners, the so-called UBOs (ultimate beneficial owners) and at persons holding key management positions.
Invest
Risk assessment
Financial analysis
Financial analysis plays a key role in the assessment, as we look into a number of indicators. We focus primarily on capital adequacy, profitability and liquidity. We check that the statements faithfully and truthfully reflect the company’s current situation, while only auditing statements can lead to achieving a better mark.
Great emphasis is also put on the loan portfolio quality analysis. A loan portfolio can be assessed in many ways, each of them suitable for a different kind of loan. With short-term loans, we look at the Vintage Report, which aims to compare parts of a loan portfolio with identical times of disbursement to track their performance in time. This analysis then gives us information about how quickly the principal is being repaid.
For secured loans, the key indicator is the LTV (Loan To Value), i.e. the percentage of the loan amount relative to the collateral value. We also assess the quality of the loan portfolio based on indicators such as PAR30, PAR90 or PAR180, which indicate the percentage of loans over 30, 90 and 180 days past due, as well as the proportion of written-off loans. We have set optimal values for some of these indicators, while with others we mainly monitor their development over time.
Business profile analysis
In this step, we look into the company’s internal processes. We examine how effectively the company manages risks and how its evaluation model works. We also request information from the provider on how issues with overdue loans are resolved and how the debt collection process is carried out. We also focus on the company strategy and evaluate the quality and feasibility of their business plan.
Within the quarterly monitoring, we also evaluate the quality of communication, maintaining minimum balances on the virtual account and a working API connection.
Aspects assessed within the business profile analysis
Risk Department
- Independent Risk Department
- Adequate employee qualifications
- Quality and regular reports
Scoring and overdue loans
- Correctly set scoring parameters
- Fraud prevention and detection measures
- Cooperation with credit registries or access to credit history
- Effective debt collection
Business profile
- Quality and realistic business plan
- Adherence to the code of ethics
- Customer Relationship Management systems
Monitoring
- Quality of communication
- Maintaining minimum balances on the virtual account
- Working API connection
Operating environment including supporting and stress factors
In this part, we focus on the assessment of the provider’s operating environment, i.e. its country of operation. The country’s rating affects the provider’s final mark dynamically and can only make it worse.
Within the operating environment, we monitor the following variables:
- Outstanding loans index and credit information sharing
- Economic decline index
- Business environment and public administration: regulatory quality index and political stability index
- Direct investments: currency non-convertibility risk and transfer restrictions
Finally, we think about whether there are any other significant factors that our risk assessment needs to consider. For this purpose, we use supporting and stress factors. If a company has a strong business partner, for example, who acts as a guarantor, we assign a supporting factor to the company. On the contrary, if the company has not been around for long, we assign it a stress factor.
Assigning marks and monitoring
Based on all the information gathered and scores received, we assign the company an internal assessment and decide on the maximum exposure, i.e. the maximum volume of loans it can place on the platform for investment. Each quarter we perform a regular monitoring where both positive and negative factors are taken into account, based on which we can change the mark the company has been assigned. The assessment is revised each quarter.
Positive factors improving a provider’s mark
- quality communication with the provider
- significant improvement of the company’s financial results and performance
- improving market regulation in the country
- acquiring a strong business partner or investor
- maintaining balances on the virtual account
Negative factors affecting a provider’s mark
- increasing number of non-performing loans
- significant deterioration of the company’s financial results and performance
- tighter regulation in the provider’s market
- restrictions or lawsuits against the company
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