10th May 2021 08:36
(Alliance News) - Subprime lender Provident Financial PLC on Monday confirmed it plans to get out of the home credit business one way or another, placing the division into run-off and considering a sale.
Provident shares were down 7.3% early Monday at 239.40 pence each in London, the worst performer in the FTSE 250.
Bradford-based Provident earlier this month had said its review of the business was nearing completion, following press reports that it would wind-up both the home credit unit and online lending arm Satsuma to focus on its credit card business, Vanquis Bank, and its car finance operation, Moneybarn.
Provident on Monday said it has decided to withdraw from the home credit market "entirely" and is considering a sale of the Consumer Credit division, which includes Satsuma.
"The home credit business will be placed into a managed run-off, which would be expected to conclude by December. We expect to manage the IT infrastructure and support service expenditure lower as the receivables book falls. At the end of March, Consumer Credit division had approximately 2,100 employees and an internal consultation for these employees has started today. It is anticipated that the cost to the group of placing the business into managed run-off or disposing of Consumer Credit division will be up to circa GBP100 million," the company said.
The announcement came as Provident reported a swing to loss in 2020. The FTSE 250-listed company turned to a pretax loss of GBP113.5 million from a profit of GBP119.0 million driven by lower receivables and higher impairments as a result of Covid-19.
New bookings for 2020 fell and so did receivables. At the end of 2020, Provident had 2.1 million customers compared to 2.3 million the year before, and a total receivables balance of GBP1.8 billion, down from GBP2.2 billion in 2019.
Total revenue for the year amounted to GBP807.8 million, down 19% from GBP996.1 million the year before as interest income declined to GBP724.3 million from GBP877.2 million, and fee income fell to GBP83.5 million from GBP118.9 million year-on-year.
Covid-19 had an "immediate impact" on customer demand for credit, said Provident, which tightened underwriting standards in April last year in response to a "changing consumer landscape".
At the end of December, the company held total regulatory capital of GBP675 million, equating to a total CET1 ratio of 34.2% and a surplus above the minimum regulatory requirement of GBP264 million.
Going forward, Provident said its credit card and vehicle finance businesses reported improving trends during the first quarter of 2021, with credit card spend improving and demand for vehicle finance increasing as lockdown restrictions eased.
By Evelina Grecenko; [email protected]
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