British doorstep lender Provident Financial sank to a first-half loss and suspended dividend payments, as it put aside 240 million pounds ($316 million) for an expected surge in bad loans in the coronavirus-driven economic slump.
However, shares in the company – already down about 50% this year – jumped as much as 14% as some analysts said the numbers were better than feared and hailed what they described as prudent planning.
Britain has plunged into the deepest recession for centuries, but a government furlough scheme has paid the bulk of the wages of millions of workers, helping to protect jobs.
With the scheme set to end in October, however, life looks set to get harder for Provident’s customers – typically people who do not meet the lending criteria of mainstream banks.
The company’s impairment coverage ratio for its consumer credit division (CCD), which measures bad loan provisions as a percentage of gross receivables, soared from 13.5% to 71.6% as it bet job losses would spur a wave of defaults.
“It could have been much worse,” Goodbody analysts wrote in a note to clients of the first-half results.
“While impairments are very high, some of this will be seen as judicious prudence on the part of management – and should reduce the need for substantive charges in the coming quarters.”
Provident said CCD customer numbers had fallen to 379,000 from 531,000 a year earlier, as it tightened credit conditions and the furlough scheme bailed many households out.
But demand for loans looks set to pick up as unemployment rises.
“Our market will grow due to the pandemic, but at present it appears the supply of credit into the market is decreasing, which cannot be a good outcome for customers, nor a public policy one for the UK,” CEO Malcolm Le May said.
Provident, emerging from a period of heavy fines for its past selling practices, posted an adjusted pretax loss of 32.6 million pounds for the six months ended June 30 versus a profit of 80.4 million pounds a year earlier, adding that was materially better than its internal plans.
It added it would repay its own furlough support to the government.
($1 = 0.7604 pounds)
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