Provident may benefit from spending review

Provident's chief executive Peter Crook said this week's spending review would affect very few of the group's customers.

"It touches a very small minority of customers," he said. "We are well placed to adjust our lending."

He estimated that the main impact – the capping of benefits at around 500 a week from 2013 – will affect under one per cent of customers.

Provident could actually see some benefit from the review as people who lose their public sector jobs find themselves shunned by the high street banks.

"We may well see growth in our target audience," said Mr Crook. "When people lose their jobs in the public sector, they might well come to us.

"If they are forced to take temporary or part-time work, most banks wouldn't want to lend to them."

The Bradford-based group, which specialises in loans to people who borrow under 500 and pay it back in weekly instalments, has managed to remain profitable throughout the recession, thanks to tight cost controls and sensible lending.

Provident said that trading for the nine months to the end of September is in line with its forecasts and there has been a recent pick-up at its home credit business as people get ready for Christmas.

"I'm very encouraged by the recent performance of our businesses as we enter the busy pre-Christmas period," said Mr Crook. "Looking forward we have very good organic growth opportunities."

Many of Britain's subprime lenders have been impacted by the aftermath of the credit crisis, most notably its former arch rival Cattles.

Provident's shares closed up 4.5 per cent, a rise of 35p to 808.00p last night

Shore Capital analyst Danielle James said: "In our view, the statement is much more positive than the market may have anticipated – with confirmation from management that performance in both Home Credit and Vanquis bank is in line with expectations and on an improving trend."

Shore Capital, which upgraded its recommendation for the stock to 'buy' from 'hold', said that because the loan book is short dated and changes to welfare benefits will be phased in over a number of years, there was no increased credit risk exposure for Provident.

"Encouragingly, management notes that in recent weeks there has been a pick-up in sales which are now running ahead of the comparative period last year," added Ms James.

At Vanquis bank, delinquency rates continued to improve into the third quarter and customer numbers of 501,000 represents year on year growth of 20.4 per cent.

Provident has the largest home credit business in the UK and Republic of Ireland.

It serves customers on average or below-average incomes, many of whom find it difficult to obtain or manage other forms of credit.

The group offers home credit through the Provident Personal Credit and Greenwood Personal Credit brands, which share a network of over 400 branches and administrative facilities.

Provident provides small, unsecured loans, typically for sums of

between 100 and 500.

Customers use home credit for a variety of purposes, from special events such as Christmas, weddings or birthdays to coping with an unexpected bill.

Loans are delivered to the customer's home by an agent of the company who then calls every week to collect the repayments.

Provident's home credit businesses have over 11,700 agents in the UK, most of whom (71 per cent) are women.

Agents are paid commission based on what they collect, not what they lend, so it is in their interest to lend only as much as customers can afford to repay.