UK lender Provident braces for increase in bad debts

(Reuters) – UK lender Provident Financial PFG.L sank into a first-half loss and suspended dividend payments as he set aside £ 240m ($ 316m) for an expected increase in bad debts amid the economic slump caused by coronaviruses.

However, the company’s shares – already down around 50% this year – jumped 14%, with some analysts saying the numbers were better than expected and hailing what they called prudent planning.

Britain plunged into the deepest recession in centuries, but a government holiday program paid the bulk of the wages of millions of workers, helping to protect jobs.

However, with the program scheduled to end in October, life looks set to become more difficult for Provident customers, typically people who do not meet traditional bank lending criteria.

The company’s impairment coverage ratio for its consumer credit division (CCD), which measures bad debt provisions as a percentage of gross receivables, rose from 13.5% to 71.6% as it is betting that job losses would trigger a wave of bankruptcies.

“It could have been a lot worse,” Goodbody analysts wrote in a note to clients on first half results.

“While the write-downs are very high, some of them will be seen as wise prudence on the part of management – and should reduce the need for substantial charges in the coming quarters.”

Provident said CCD’s customer count fell to 379,000 from 531,000 a year earlier as it tightened credit conditions and the holiday program bailed out many households.

But the demand for loans is expected to increase as unemployment increases.

“Our market will grow due to the pandemic, but at the moment it seems that the supply of credit in the market is decreasing, which cannot be a good result for customers, nor a public policy for the Kingdom. United, ”said CEO Malcolm Le May.

Provident, coming out of a period of heavy fines for its past sales practices, recorded an adjusted pre-tax loss of 32.6 million pounds for the six-month period ended June 30 against a profit of 80.4 million pounds a year earlier, adding that it was noticeably better than his internal plans.

He added that he would reimburse his own support on government leave.

($ 1 = 0.7604 pounds)

Reporting by Muvija M in Bengaluru; Editing by Saumyadeb Chakrabarty and Mark Potter


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