P2P portfolio valuations may take a hit from coronavirus

The coronavirus could cause peer-to-peer portfolio valuations to take a hit and more borrowers to go into default, financial analysts have claimed.

The pandemic has already affected platforms,  as ongoing economic uncertainty has resulted in a spike in investors wanting to withdraw their money from platforms.

Read more: Coronavirus could lead to platform closures

Read more: Analyst warns coronavirus will test P2P lenders

Growth Street has restricted investors from accessing their funds, Assetz Capital has temporarily paused withdrawals from its Access Account, and RateSetter has warned its withdrawals are taking longer due to the higher demand.

“Like everything else, P2P portfolio valuations will take a hit owing to the Covid-19 crisis,” said John Cronin, financial analyst at brokerage Goodbody.

“Those with small business exposures will, all else being equal, take a harder hit than property-focused portfolios.

“However, I do believe we will see a number of strong players emerge once things settle down.

“While virtually all P2P players are being met with a wave of redemption requests, an interesting case in point is that many RateSetter customers have decided not to withdraw their funds given the alternative investment options (cash or shares) are not altogether that attractive right now.”

Mark Turner, managing director, regulatory consulting at Duff & Phelps, said it’s inevitable an increasing number of borrowers will go into default.

“Undoubtedly there will be some support in amending terms for repayments, but I do believe strongly there will be increasing impairments and loss suffered on many of these loans as and when they are repaid,” he said.

“You would hope that as the economy improves loans go up and running again. On hindsight forbearance may be the right thing to do or may push borrowers further into debt.

“These are decisions platforms have to make. If considering payment forbearance do you have the agreement of lenders who have invested in the platform to do that?”

Neil Faulkner, managing director of P2P research 4thWay, said that bad debts will rise due to an economic fallout that will not be completely offset by government support packages.

“Investors can generally expect to see their investment results becoming less impressive due to a revaluation of their loans or due to a fall in the actual worth of some of their loans,” he said.

“As the government’s support package gradually fleshes out and expands over the coming weeks, it’s going to change how different types of borrowers and loans are affected.

“How long any lockdown lasts will also impact what types of loans are hit worst.”