Provident shrugs off fears over spending reforms

SHARES in credit lender Provident Financial shot up last night after the group said Government spending cuts will have a minimal impact on the business.

The group's shares have tumbled over the past few months on the back of speculative short selling, amid fears that Provident could be hit by public sector job losses and welfare reforms.

But the Bradford-based group quashed the rumours yesterday with a seven per cent increase in sales over the past 12 weeks and a bullish statement about its future.

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The company said the sales improvement followed the decision to focus on lending money to existing, good quality customers, using tight credit standards which have been in place for some time.

Provident's chief executive Peter Crook said: "Gossip was circulating in the market that we would be hit by the Government spending reforms, but we've comprehensively dismissed that in this announcement. Growth in home credit has picked up nicely."

He added that the group, which offers small, short-term loans to people who would have trouble borrowing from mainstream lenders, is seeing confidence slowly returning.

"People have stopped believing it's going to get worse," he said. "The spending cuts were not as bad as they might have been and customers are breathing a sigh of relief. They have better visibility on disposable income now."

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Analysts raised their profit forecasts and the group's shares closed up 8.6 per cent last night, a rise of 66.5p to 841.5p.

Provident said the Government's decision to cap family benefits at around 500 per week would affect less than one per cent of its customers. Equally the decision to scrap child benefits for wealthy families won't have an impact.

The group said the Government's published timetable for benefit reforms had allowed its agents to plan how the changes could affect customers over the next four years, helping them to factor in the cuts when assessing potential borrowers.

In the long term, the business should also benefit from the transition to a Universal Credit benefits system from 2017, which should lead to 2.5 million households being better off.

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At least a third of the group's customers will benefit from an increase to the income tax threshold from next April to 7,465. Provident added that the threshold could be increased to 10,000 during the life of the current parliament.

The public sector job cuts are expected to have minimal impact on the group's customers, who typically get paid by the hour or work on a casual basis or part-time.

"It's white collar desk jobs that are going to go," said Mr Crook. "That is not what our customers typically do. The people affected will be bank customers."

The group is looking forward to a good Christmas following the recent seven per cent increase in sales. "We never believed our customers will cancel Christmas," he said.

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Asked whether the group is expecting the same New Year slowdown that the big retailers are predicting, he said: "It is always slow for us in the first quarter of the year, we don't tend to lend much money then."

He added that the group should not see much of a hit from the increase in VAT to 20 per cent in the New Year, as customers tend to borrow money for non-VAT items such as rent, food, children's clothes and energy bills.

Provident currently turns down around 75 per cent of people who apply for a loan, in favour of customers whose lifestyles are more stable.

The group's Vanquis Bank business has continued to see strong levels of new business, with arrears continuing to fall.

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Provident said it had a strong balance sheet with Vanquis now generating enough capital to fund its own growth.

Financial habits die hard

People in the North East are not changing their financial habits in response to the recession, according to the latest research from HSBC.

Despite claiming they are more worried and insecure about money, people living in the North East are proving to be resistant to changing their financial habits in response to the recent economic turmoil.

The majority of people living in the North East have not altered their saving, spending or borrowing habits.

More than eight in ten say they are worried about the economy. However, nearly two thirds have not changed their financial habits.