The group has also benefitted from an increased demand for credit cards, with its Vanquis Bank operation seeing delinquency rates drop significantly.
Provident Financial provides small doorstep loans for individuals who may find it difficult to get credit from a mainstream lender. Whilst these types of lenders have been slammed in the past for not adequately checking the finances of who they lend to, Provident says it has been carefully checking applications before agreeing to provide a loan.
The group which is based in Bradford and have 2.5 million customers has announced that its pre-tax profits reached £162.1 million in 2011, despite seeing the amount it receives in charges reduced because of better payment records from customers. This figure is a 12.2% increase compared to the profits announced 12 months earlier.
Vanquis Bank, its credit card arm, said it is receiving in excess of 1.5 million applications per year, which led to an increase in its customer base of 27% in 2011, taking the total number of cardholders to 691,000. This was by far the best performing part of the operation, with profits climbing by two thirds and soaring to £44.2 million. Delinquency and default rates amongst Vanquis Bank customers has reached what has been described as ‘an all-time low,’ whilst the business has just started accepting deposits from those who want to put some money aside.
The doorstep lending part of the business did not fare as well, with its total number of customers falling to 1.8 million, down by 1.9%, after it admitted that it had tightened up its lending criteria. Provident’s typical clientele include those who are paid either hourly or weekly, or those in receipt of benefits. But the group said that its focus has been on only offering finance to those who can clearly afford the repayments, a strategy which has clearly paid off, given the drop in default rates. It also said that it was concentrating on providing further services to those who had already demonstrated a good payment record.
But despite its tightened lending criteria and tough approach on defaults, Provident has said that it expects to see the amount of arrears increasing during 2012, primarily because of the impact of UK unemployment reaching three million.
The chief executive of Provident, Peter Crook, said that ‘close attention to credit quality’ had been the ‘foundation’ of the group’s success, but he insisted that even though the next twelve months were likely to be tough, ‘tight credit standards’ would remain.
He added that operations in 2012 had been profitable so far, with ‘robust collections’ and a ‘strong start’ for the banking arm.
Elsewhere in the home credit industry, Norton Finance has been snapped up by Midlands-based S&U, a motor finance provider and doorstep lender, for an undisclosed amount. Norton is a family based firm which currently employs around 250 staff. Its last accounts lodged for the year ending April 2011 revealed sales of £11.1 million and a net profit of £523,000. With the sale of the home credit operation, S&U said that the acquisition would help to immediately boost profits. S&U also said that the move would mean expanding its customer base and providing it with a market presence in the Yorkshire area.
S&U is expected to continue to make acquisitions after it recently announced during a trading update that its banking affairs meant that it had ‘significant fire power,’ with the ability to engage in further bids.