Bondster providers rating
Providers that offer loans on the platform Bondster are assigned a credit risk rating. The rating is indicated by a letter on a 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 rating of C- would be used for a provider with a very high probability of default or other interruption in its operations. Obtaining a D would mean that the provider has experienced a more significant delay in meeting its obligations.
Before a contract is concluded with a provider and it is listed 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 is able to meet its obligations to investors.
Rating is based on several factors and represents the strength of a buyback guarantee. The buyback guarantee strength is a reflection of the overall debtor’s (provider’s) ability to meet its contractual obligations, meet liquidity requirements and that it possesses sufficient funds. If a loan provider does not offer the buyback guarantee, you are advised to look at the risk of the loan in which you want to invest. The risk depends on the ability of the person that took the loan to repay it, and not on the provider itself.Invest
- Rating Risk Level Description Degree
- Rating A+ Risk Level Low Description The provider has the highest credit rating and an extremely strong position to meet its financial obligations. Degree Investment
- Rating A Risk Level Low Description The provider has a very strong ability to meet its financial obligations. Degree Investment
- Rating 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
- Rating 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
- Rating 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
- Rating 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
- Rating 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
- Rating 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
- Rating C- Risk Level High Description The provider is very likely to default or experience other interruptions in its operations. Degree Speculative
- Rating D Risk Level Default Description Default Degree Default
- Rating NR Description Not rated
- Rating WR Description Rating withdrawn
How the RATING on Bondster works
Before a provider appears on our platform, it must pass a thorough due diligence process. The process has several phases and begins with the gathering of information about the provider, based on which we decide whether to cooperate with the company or not. The first phase involves AML and KYB aspects, which represent a crucial part of the evaluation. If the provider passes this phase, we move on to conduct different types of analyses. The rating is the result of all the above phases 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 assigning a RATING
AML & KYB
Within the AML (Anti-Money Laundering) and KYB (Know Your Business) aspects, we conduct a detailed inspection of companies and connected persons.
First, we check the company and its connected persons in various world databases. To do it, we use special software connected to databases around the world. We are therefore able to inspect even companies located in Africa or South America.
Our primary focus is whether a company has not been entered into sanctions register or blacklisted for reasons such as fraud, money laundering or terrorist financing. The inspection takes place at the actual owners, the so-called UBOs (ultimate beneficial owner) and persons holding key management positions.Invest
The most important part of rating is the financial analysis, in which we assess a number of indicators. We focus on capital adequacy, profitability and liquidity. We check whether the company’s financial statements are correct and true. To achieve a better result in the financial area, the company’s statements need to be audited.
Great emphasis is 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 loans. With short-term loans, we look at the Vintage Report, which aims to compare elements of a loan portfolio with an identical time of disbursement to make it possible to measure their performance in time. This analysis then provides us with information about how quickly the principal is being repaid.
Important information about secured loans is provided by their LTV, which stands for ‘Loan To Value’ and represents a percentual share of the loan value to the value of its collateral. We also assess the quality of a loan portfolio by indicators that provide us information about the percentage of loans that have been overdue for more than 30 days (PAR30), 90 days (PAR90) and 180 days (PAR180), or are classified as written-off. For some indicators, we have set optimal values which are to be achieved while with others we rather follow their development over time.
Business profile analysis
In this part, we get acquainted with a company’s internal processes. We examine how the company manages its risks and look at how its scoring 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 then look at the company strategy and assess the quality and especially the feasibility of its business plan.
Within the quarterly monitoring and in addition to the activities specified above, 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
- Independent Risk Department
- Adequate employee qualifications
- Quality and regular reports
Scoring and handling of overdue loans
- Correctly set scoring parameters
- Fraud prevention and detection measures
- Cooperation with credit registries or access to credit history
- Effective debt collection
- Quality and realistic business plan
- Adherence to the code of ethics
- Customer Relationship Management systems
- 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 rating substantially 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
Last but not least, we look at whether there are any other significant factors that our risk assessment needs to take into account. For that, we use supporting and stress factors. If a company has a strong business partner, for example, that 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.
Rating and Monitoring
Based on all the information gathered and the score achieved, we assign the company an internal rating and set the maximum exposure, i.e. the maximum volume of loans it can place on the platform for investment. Each quarter we perform regular monitoring where both positive and negative factors are taken into account and based on which we can upgrade or downgrade the company’s rating. The rating is updated shortly thereafter to reflect the company’s current situation.
Positive factors that improve rating
- 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 that worsen rating
- 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