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#TrustBuddy: Improving its operational practices

On July 8th, TrustBuddy’s CEO Linus Lönnroth sent out a letter to his customers, highlighting several interesting changes in the company’s debt collection and credit scoring practices. The steps are a further sign that the company is developing into the right direction. Its new Board and management are focusing on the right things operationally, which goes pretty much unnoticed by the stock market.

Here is the letter in detail:

“Dear Lenders,
Towards the end of 2014; TrustBuddy has undergone significant changes in relation to its Board, management, corporate structure and strategic focus. The new Board, together with management has so far in 2015 invested extensive resources to implement a new organizational structure and new procedures in order to further professionalize the company. Among other things, a comprehensive strategic development and cost savings have been introduced, which was also presented in several press releases during spring 2015.

One area where great attention has been paid, is the company’s operational procedures within the business area short-term consumer loans. This letter describes the changes that have been implemented and how they will affect existing customers.

TrustBuddy has since 2010 mediated loans, extensions and refinancing operations with a value of SEK 2.4 billion in six countries. As part of the company’s operational procedures, loans are routinely sent to collection when they are not repaid on time. How long a loan remains in the collection before it has been reimbursed varies greatly from case to case – in a last stage, a loan in collection is either written off as a loss or sold at a discount. Currently, the aggregate amount of loans that are in collection is approximately SEK 220 million.

The aggregate loan volume, which has been in the collection for a considerable time without any payments whatsoever – so-called ” non-performing loans “- is currently too high and will be illustrated specifically below.

Furthermore, the company’s practice, which are governed by the general conditions in terms, that in some cases to facilitate liquidity by transferring existing loans among lenders, has been analyzed. This practice has been deemed ineffective and not enough satisfactory for customers. TrustBuddy has decided to change the general conditions in terms relative to this practice.

As a result of the company’s previous operational procedures, a number of lenders today have loan portfolios showing low yields and have lower liquidity than can be expected under the company’s current practices for new loans.

Under its new management TrustBuddy has invested significant resources in the area of credit analysis. The aim is not only to improve but also to maximize results in this area. TrustBuddy has therefore established a new, dedicated and experienced team working full time with the credit analysis within the following two core areas:

Maximizing the value of the existing “non-performing” loan portfolio.
Quality improvement of the portfolio containing new loans with the goal to create a better future return on invested capital on TrustBuddy’s P2P platform.
In order to maximize the value of existing “non-performing” loan portfolio, TrustBuddy is working with several potential solutions in parallel, which is expected to be completed before year-end:

Re-activation or re-financing of “non-performing loans” within TrustBuddy.
Reactivation and / or installment plans in collaboration with external debt collection suppliers.
On the behalf of company’s lenders selling “non-performing loans” to the highest bidder in the market. Key players in the credit market are offered to participate in a bidding process to determine and realize the actual market values of these portfolios and the funds will be returned to lenders.
Improve internal policies in order to calculate the value of “non-performing loans”, which in turn gives the company’s creditors improved portfolio insight and enables the company to better illustrate the expected rates of return on the loan investments.
In order to allow higher-performing loans in the future, TrustBuddy has implemented several enhancements that mean that it can pass on loans of much higher quality than before:

Improved credit policies in the Nordic markets with good results so far.
Automation of all credit policies in order to avoid errors due to the human factor.
A brand new credit scoring model, fully operational towards the end of July, in all Nordic markets. A new credit scoring model is already operational in Denmark.
To sum things up, TrustBuddy has identified a number of bottlenecks in its previous operational procedures and business model related to the business area, short-term consumer loans, which in several cases has led to unsatisfactory loan portfolios. These problems are limited and addressed, and are therefore not relevant for new loans. However, TrustBuddy has a number of lenders who are experiencing low yield levels and similarly low liquidity due to a high proportion of “non-performing loans” in their portfolios. As described above, TrustBuddy is currently implementing a number of improvements that are designed to increase the value of these portfolios as much as possible, and with as low losses as possible. These lenders should expect these aforementioned improvements implemented during the third and fourth quarter of this year.

Note that the above information is only attributable to TrustBuddys short-term consumer loans issued during the previous operational procedures.”

Nordic Investor

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