15th Mar 2021 08:35
(Alliance News) - Provident Financial PLC shares plunged on Monday morning after the sub-prime lender said its Consumer Credit Division faces liquidation unless a scheme of arrangement can be agreed to pay off increasing customer complaints.
Shares in Provident were down 25% at 196.00 pence in early trading in London, the biggest loser in the FTSE 250 index.
"When combined with the impact of Covid-19 on its profitability, customer complaints can no longer be treated as part of operating costs," Provident Financial explained.
It continued: "If approved, a scheme will bring certainty for stakeholders and ensure that customers with a legitimate claim get fair access to redress payments. The group will fund legitimate scheme claims with GBP50 million and will cover further scheme related costs estimated at approximately GBP15 million. The total commitment would be met out of PFG's existing resources."
The company said customer complaint payments were about GBP25 million in the second half of 2020. On top of this, the unit processed balance reductions for home credit customers of about GBP11 million during the same period.
"If the scheme is not approved, it is likely that CCD will be placed into administration or liquidation. If this were to happen, CCD customers would not be expected to receive any redress payment. Whilst the financial repercussions for CCD would be expected to be substantial, the direct financial or operational repercussions for Vanquis Bank and Moneybarn of an administration or liquidation of CCD would not be significant," Provident added.
Provident said it has been talking to the UK Financial Conduct Authority about the scheme - so it complies with regulatory standards - and the FCA has informed CCD of a "number of concerns" it has with aspects of the scheme, but has not yet completed its assessment.
"CCD believes it will be able to resolve the FCA's concerns, apart from their concern as regards redress creditors receiving less than full value, prior to the first court hearing but, if any remain unresolved, CCD expects the FCA to set them out for the court in writing," Provident added.
The doorstep lender noted the FCA separately has opened an enforcement investigation into its CCD unit - focusing on the consideration of affordability and sustainability of lending to customers for the period between February 2020 and February 2021.
"CCD intends to work closely with the FCA in the coming months, including in relation to the investigation, which is unlikely to conclude until 2022," Provident said.
In better news for Provident, it said its fourth quarter performance was ahead of internal expectations, and, as a result, for the year as a whole.
Chief Executive Malcolm Le May said: "Whilst the latest [UK] government lockdown has reduced the demand for unsecured credit in our markets so far this year, we continue to see scope for growth opportunities, post-Covid, over the medium-term."
At the end of December, the company's regulatory capital was GBP685 million and its CET1 ratio stood at 35.0%.
CCD lending was down in the fourth quarter, but Provident said its collections remained strong, at about 90% of maturities. The unit's customer receivables stood at GBP139 million and the end of 2020, down from GBP140 million at the end of the third quarter and reduced further to GBP118 million at the end of February in-line with management expectations.
Vanquis Bank's impairment trends "remained favourable" in the fourth quarter, Provident said, and the take-up of payments holidays remained below expectations.
Turning to its car finance unit, Moneybarn, Provident said it continued to see good levels of demand during the final quarter of and the tighter underwriting criteria introduced in March led to a "significant improvement" in the credit quality of its average customer throughout 2020.
Commenting on the CCD announcement, analysts at Jefferies said: "Vanquis and Moneybarn remain well-positioned, and are insulated from CCD's difficulties."
By Paul McGowan; [email protected]
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