Originally Posted by
Fiordland Moose
hey jimbo - see my current FY22 credit loss forecast for harmoney below
I'm pretty sure the arrears numbers they provide are for the total proforma book.
I'm confident FY22 total incurred credit losses (banks sometimes call them 'charge offs') will be inline to slightly below FY21 levels (I actually see them decreasing from 3.88% of average book to ~3.73%). For my shorter term forecasts I tend to look at the movement in half year ICL losses and segment them by warehouse/statutory and p2p as the differences are large, thinking about how the environment has changed, and keeping in my mind the arrears ratio for each period and how that compares to the ICL % trend.
I see FY22 2nd half ICL expenses as % of average book rising a little bit from the first half of the year - like 15bps or so - for the proforma group. But I actually see both warehouse and p2p increasing - the decreasing proforma is simply a function changing weighed average between the two.
Warehouse/statutory ICL's % have been pretty stable. I assume a slight increase in the second half of FY22 relative to the first half but think the full year number will be similar to FY21
P2P a different bag. This book is run off and I expect will be at or close to zero by 31 December 2022. The book is old, relatively higher risk, in run off, and ICL's are clearly on the rise. I infer what the actual incurred credit losses will be based on the closing 'total expected credit loss' provision provided at 31 december 2021, and phase that based on how I see that book running down as it is repaid.
I sense check my 2H group/proforma ICL expense as a % of average receivables by noting 31 march 2022 +90day arrears were the same as the 31 December/1H FY22 figures.
For my longer term forecasts, I am still to update my model for FY23 and beyond. But in summary incurred credit losses are a function of 3 things: macro factors, the age of the book, and changes to the mix or riskiness of the lending (ie p2p which used to dominate the book vs warehouse which is much more credit worthy)
When I forecast any financial institution I always at the top of my assumptions have a little baseline of economic indicators (interest rate forecasts, unemployment, wage inflation, CPI, etc) I keep in mind when setting my operating assumptions (change in receivables, interest income & expense assumptions, credit losses, overhead inflation etc). I use the average of the 4 big bank forecasts (but sometimes over ride their longer term forecasts with long term averages). Unemployment and real wage growth the two most important when thinking about credit losses.
The age of the book is the other big thing. When originations are really strong the average ICL expense tends to be lower. People don't tend to take out a loan and then default on it a few weeks later. So a fast growing book should have relatively low expenses and as it matures those %'s should rise even if the macro environment remains identical.
When I get a chance to update my model I'll post / PM you some of the outputs