The banks’ previous oligopoly has led to an excess return on bank loans. When this is now challenged, interest rates will fall over time, which means that it is currently the gold position for those who want to invest in the asset class.
Now you as a private individual can make money from investing in loans
For a long time, bank loans were only a way for banks to make money. And with a market of SEK 200 billion in Sweden and high interest rates for borrowers, banks’ profits have been high. But for a few years now, it is possible for ordinary investors to make money in the large and lucrative market, through peer to peer loans. The peer to peer market in Sweden is relatively new, but is growing rapidly. Sergeant Muhh, the largest in Sweden on peer to peer loans, increased his lending by 665 percent over the past twelve months. More and more investors are also realizing the benefits of the asset class – the company’s active investors have increased by 50 percent in the past six months.
There is currently an excess return as a result of the banks’ previous oligopoly, which makes it very favorable for investors, says Erika Eliasson.
– You as an investor can now go in and make money as the banks do. Investors take the risk but also get the return. Since the banks have had exclusive rights to the asset class, the return on risk may be a little too good to be true. Just read the banks’ income statements to understand that returns in relation to risk are too high. If you invest as a private individual, you now get to take advantage of the excess return that the banks have lived well through their oligopoly.
Interest rates on interbank loans will fall
As new entrants come in, interest rates on blank loans will fall. It also means lower returns on new investments in the long term.
– Interest rates do not fall on existing loans. If you invest now you will sit with a portfolio that has a higher return than those expecting, says Erika Eliasson and continues:
– It should also be emphasized that the interest rate on underlying loans is linked to the general interest rate situation in society, which means that if STIBOR is increased, the interest rate on underlying loans in your existing portfolio will also increase and your return will increase.
Liquidity through secondary market
In November, Sergeant Muhh also launched its second-hand loan market, where existing portfolios are bought and sold.
– We can see that the average price in our secondary market is around 102 percent, which means that investors who have sold their portfolios have sold at a higher value than invested capital. When interest rates on new loans fall on new portfolios, you can most likely sell your portfolio at a higher value than you bought it for.
Erika Eliasson believes that the return requirements will also decrease as the more established asset class becomes.
– When you feel more secure, the return requirement also drops. Then you might be willing to invest in this at about two – three percent because you understand what a low risk it actually is.
At the same time, she wants to be clear that Sergeant Muhh has no ambition to increase the blank loan market.
– What we want to do is challenge the big banks and niche banks that have made very big profits in this asset class, and we want to lower the interest rate for borrowers and increase the return for investors. And take away these big profits that the banks actually make.