Peer-to-peer lender RateSetter's losses jump as it takes a hit from bad loan to ad company

RateSetter made a pre-tax loss of £23.3 million in the year to March 2017.
Figure inflated by a £12 million loan to an advertising company that RateSetter subsequently took over after it got into financial difficulty.
Results show revenues also rose by 38% to £23.7 million, customer and borrower numbers also up.

LONDON — RateSetter, one of the UK's three biggest peer-to-peer lenders, saw its losses jump last year after it took a hit from a bad loan.

RateSetter booked a pre-tax loss of £23.3 million in the year to March 2017, compared to a £5.3 million in the previous year. The company operates a peer-to-peer platform that matches retail investors with individuals looking to borrow money.

Operating losses were £9.2 million last year but the figure was pushed higher by a one-off write-down relating to a loan the platform made to Adpod Limited, an advertising business RateSetter lent £12 million.

RateSetter announced in July that it had taken the unusual step of taking over Adpod after the company got into financial difficulty. The company decided to stand behind the loan made to Adpod, agreeing to make repayments to RateSetter's platform investors in the event that Adpod couldn't.

"As this loan was outside RateSetter’s credit policy and was an exceptional case, RateSetter believed it was right for it as a company to absorb any losses from this loan, as opposed to the Provision Fund doing so," the company said on Wednesday.

RateSetter operates a provision fund that is meant to cover the initial losses of any loans, giving platform investors a buffer.

The £14 million impairment charge represents the total lifetime value of Adpod's loan repayments and RateSetter could end up spending less than that if Adpod gets onto a steady footing. Business Insider understands that the loan to Adpod is the only loan it has written to date that is outside of its credit policy.

'A resilient business'

RateSetter's accounts also show that revenue rose by 38% to £23.7 million. Loans under management rose by 23% to £714 million. The number of active lenders on the platform rose by 36% to 42,049 and the number of borrowers rose by 27% to 204,000.

CEO and cofounder Rhydian Lewis said in a statement: "The last year was an important one for RateSetter: we showed that we are a resilient business, with the strength and maturity to deal with challenges and emerge stronger as a result.

"During the year, we decided to focus on higher quality credit. Our view is that durability through a cycle is the key test and, while lower quality credit is still valid, it is clearly more vulnerable in a downturn."

RateSetter passed £2 billion of loans over its platform in July and gained full regulatory approval in the UK in October.

The company, which was founded by two former City finance workers in 2009, raised £13 million in May at a valuation just shy of £200 million.

Lewis said in a statement: "As we go into 2018, we are very confident that the investment we have made over the last two years provides a strong foundation from which we can efficiently grow our business. We will launch our ISA before the end of the tax year and expect to attract £500m within a year. We expect to return to profitability next year."

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