We will start to publish an Expected Future Income figure alongside the existing Provision Fund balance, and both figures will be updated in real time. Expected Future Income is made up of Provision Fund contributions which are paid over the lifetime of loans, rather than taken upfront when the loans are made. These are contractual payments received with monthly loan repayments from borrowers. The value of this contractual future income is over £6 million. We have reduced this to £4 million to take into account the fact that some of this income will not be received due to borrowers paying back loans early or defaulting. On its own, this change would increase the Provision Fund Coverage Ratio.
The Expected Future Losses figure is updated in real time and published in the members’ area (you can view it by logging in and clicking on “Provision Fund”. The figure is in the table under the heading “Anticipated claims”). It currently stands at £13.9 million. On Thursday morning we will also update this figure to build in more prudence across all loans, partly to reflect greater economic uncertainty due to external events. We expect that this will increase the Expected Future Loss figure by £3 million. On its own, this would decrease the Provision Fund Coverage Ratio.
The net effect of the two changes above will be an increase in the Provision Fund Coverage Ratio.
As mentioned in our blog on 30 June, these changes will accompany the introduction of a target range for the Coverage Ratio. The target range is 1.25x – 1.50x.