PayNet launches loss database

PayNet, which supplies risk management solutions and market insight to the commercial credit industry, has developed a new loss database showing the types of equipment defaults that result in a loss, based on analysis of loss outcomes on almost half a million defaulted transactions totaling over $17 billion.

Thomas Ware, senior vice president, analytics and product development, PayNet, explained: “Default and loss are closely related, but very different. Paynet developed very specialized, and predictive, loss models from the largest proprietary database of $1.4 trillion commercial loan/lease loss models in the US. While defaults are important as they are a precursor to loss, at the end of the day it is truly loss that lenders really care about.”

Highlights

PayNet has released a number of highlighted findings from the new loss database. These show that half of all defaults are “nuisance” defaults, conceivably 150 days past due or more, so these defaults have a 0% loss experience. These are most common in a few major borrower types: hospitals, government, universities/schools, and utilities.

Financial institutions with specific expertise in an asset class have 25% lower losses because of their asset expertise.

Equipment type, transaction size and how soon after origination a transaction defaults determine the likelihood and magnitude of a loss. The stage of the economic cycle is a big driver as losses in a recession can run 100% – 200% higher than during expansions.

PayNet says its new loss database will help equipment finance lenders manage credit provisions through the economic cycle. It is also expected to assist in complying with the new Current Expected Credit Loss (CECL) requirements from FASB as well as regulations such as stress testing.