PROVIDENT Financial’s fast-growing Vanquis credit card arm made up for lacklustre demand in its home credit division, where customers are wary about borrowing in the face of higher food and energy bills.
The Bradford-based sub-prime lender said it expects a “strong result” for the year, with bad debts between July and mid-October on track and ample funds for growth.
Vanquis Bank offers credit cards to people turned down by big banks, lending between £150 and £3,000. It “continued to outperform its internal plans for 2012”, with surging customer numbers and margins.
A heavy recruitment drive lifted Vanquis’ customer numbers 26.6 per cent year-on-year to 834,000.
Combined with an increase in credit to customers, average receivables were up by about 36 per cent at the end of September.
Provident said Vanquis has benefited from “relatively stable” unemployment, which kept delinquency levels at record lows. It added underwriting standards remain tight, to protect the business against any weakening in the jobs market.
Chief executive Peter Crook said: “I am pleased to report further strong growth and margins at Vanquis Bank, together with a continuing stable performance from the consumer credit division at a time when the pressure on customers’ disposable incomes from cost inflation is not abating.
“Credit quality is being reinforced by tight underwriting criteria and, as it enters its peak trading period, the group is on track to deliver good quality growth for 2012.”
The group’s consumer credit arm lends sums of £100 to £500 to households, with repayments collected on a weekly basis through visits from agents.
“Customer behaviour remains cautious, especially the demand for credit for more discretionary items of expenditure,” it said.
“It is becoming apparent that the pressure on disposable incomes from continued increases in food and utility prices is not abating.”
Home credit customers tend to be hourly paid, with a bias towards casual, temporary and part-time work, said Provident.
It has maintained tight underwriting standards, which combined with consumer uncertainty resulted in “relatively subdued” sales to existing customers during the traditionally quieter months of July, August and September.
“This approach is wholly appropriate during a period when consumers’ real incomes are under further pressure from food and utility price inflation and there are risks surrounding the future direction of the labour market,” it said.
Provident said the division’s receivable levels or loan book continues to run in line with last year. It added customer recruitment has benefit from initiatives including the launch of its One Card, a pre-paid shopping card, and TV advertising. It is also boosting agents’ commission, with a higher rate for agents who achieve high-quality growth.
Collections performance remains sound, it added, with the ratio of bad debt to revenue level with the half-year, when it was 32.8 per cent.
Provident is now piloting Vanquis in Poland, and started issuing credit cards in June. The pilot is “operating successfully the early indications are that the product proposition is being well received by customers”, it said.
It added with £308m of headroom on its debt facilities and £295m of retail deposits, it has a strong funding position to meet its growth plans.