Subscores help investors to evaluate different aspects related to the risk of a loans available for investment as Notes, even if the services are provided by multiple entities. They are expressed numerically and are assigned to Loan portfolio performance, Loan servicer efficiency, Buyback strength, Cooperation structure. Subscores contribute to the Mintos Risk Score with the following weight: 40% Loan portfolio performance, 25% Loan servicer efficiency, 25% Buyback strength, 10% Cooperation structure.
The calculated numerical value is rounded to 1 decimal place. Numerical values are split across three intervals: lower risk (10.0-7.4), mid risk (7.4-4.5), and higher risk (4.4-1.0).
Loan portfolio performance subscore
To understand portfolio quality, we compare the non-performing loans ratio, the annual percentage rate, and the maturity term to the direct portfolio-related operational costs. Besides the other portfolio health indicators, we take a deep look into the historical performance of the lending company’s loan book. The loan portfolio performance subscore is calculated based on information about:
- Loan portfolio quality
- Non-Performing Loans (NPLs) tendencies
- Track record seniority
- Product characteristics (e.g., liquidity of the collateral)
Loan servicer efficiency subscore
Through this subscore we measure the loan servicer’s efficiency when it comes to collection of borrowers’ payments. Capabilities of the loan servicer are expressed in a subscore which is an evaluation summary of:
- The structure of Corporate governance and management experience in the lending business
- Implemented risk controls and compliance procedures
- Loan administration processes and efficiency
- Internal and external reporting quality
Please note that in some cases, the loan servicer and the loan originator might be two separate business entities.
This subscore measures the buyback strength and is a summary of the obligor’s ability to fulfil contractual obligations, meet liquidity needs and capital sufficiency. We calculate this subscore based on:
- Financial profile and performance
- Management experience and internal governance principles
- Diversification of revenue streams and geographies
- Funding mix and access to external/public funding
In rare cases, the buyback can be the responsibility of a business entity that’s different from both the loan originator and the loan servicing company. Even if such cases happen, with the current Mintos Risk Score evaluation model, it will be possible to have an insight into the standings of all involved business entities.
The Cooperation structure subscore evaluates the legal setup between the lending company and Mintos. Factors that are evaluated, summarized and expressed with this subscore are:
- Access to borrower-related cash flows for Mintos
- Recoverability potential based on the legal setup
- Transparency of cooperation structure for investors