Recession fails to put brake on lender’s profit surge

Bradford-based Provident said pre-tax profits in the half-year to June 30 rose 15.4 per cent, to £62.3m, beating expectations.

Provident’s chief executive, Peter Crook, said the increase reflected its tight lending criteria and improving bad debts.

“In the credit business we have focused on existing customers; we have still taken on hundreds of thousands of new customers but fewer than last year.

“We are turning away more customers than 12 months ago.”

Before the recession, Provident accepted around a third of customers who applied for credit. A year ago, it accepted a quarter and now it is approving only a fifth.

“We have taken a much tighter stance and it’s served us well,” said Mr Crook.

Bad loans at its flagship home credit operation, which lends small cash sums through agents who call at borrowers’ homes, fell from 32.9 per cent of revenue at the end of 2010, to 31.2 per cent in June.

“There is clearly a lot of doom and gloom in the high street, but it’s middle-class Middle England that is feeling the pinch, not our customers,” said Mr Crook.

Provident’s credit customers actually saw their income rise by around 3.5 per cent.

“Many of our customers are unskilled labourers, maybe working outdoors or stacking pallets. The white man van is our typical customer. They are getting a few more hours paid work,” said Mr Crook.

Pre-tax profits at Provident’s Vanquis Bank credit card operation rose 93 per cent, to £17.6m. Unlike the home credit business, the credit card operation is still in an early phase and is taking on new customers. The customer base rose 26 per cent.

Provident has started taking deposits through its Vanquis Bank arm to diversify funding. The aim is that the savings operation, which operates under the name www.highyieldaccount.co.uk, will provide 80 per cent of Vanquis’ funding requirements.

“We are just dipping our toe in the water with retail deposits,” said Mr Crook. “We are testing everything out. We have opened a few accounts, but there has been no publicity or marketing.”

Mr Crook said that retail deposits should be funding 80 per cent of Vanquis’s needs by the end of 2012.

The total retail deposits market is worth around £100bn a year, and Vanquis aims to take less than one per cent of it, around £300m, to meet its funding needs.

The savings operation is offering a rate of 3.45 per cent over one year and 3.7 per cent over two years, with a minimum deposit of £10,000.

Provident’s shares closed up eight per cent, a rise of 86p to 1115p, driven partly by an abrupt unwinding of short positions.

The shares, up 24 per cent in the year to date, attracted heavy short-selling interest last year from investors betting that welfare cuts, pushed through as part of the Government’s austerity programme, would hit Provident hard.

Mr Crook said Provident has been largely unaffected by welfare cuts as most of its customers do not claim benefits.

“Families claiming some sort of welfare benefit represent a minority of the people we serve,” he said.

Provident raised its interim dividend 5.1 per cent, to 26.7p.

“The increase in dividend signifies our confidence in the future,” said Mr Crook, who added that there would be no change to the company’s cautious stance.

Analyst Andrew Mitchell, at Charles Stanley, said: “The outlook statement continues to point to the difficult economic background, but we still see Provident Financial as relatively resilient in these circumstances.”

Richard Curr, head of dealing at Prime Markets, said: “The company has grown customer numbers, profits, revenues and has sufficient confidence in its future prospects to raise the dividend. There is seemingly little on the horizon to dent progress, and, arguably, any further downturn or fiscal tightening from the banks will only play into Provident’s hands.”

Call centre jobs boost

Provident’s credit card operation, Vanquis Bank, will employ more than 300 people at a second call centre in Bradford, which is due to open later this year.

The call centre was expected to employ around 250 people, but Provident said yesterday there will be 230 work spaces. This will mean the creation of more jobs as workers at the centre will operate on a shift basis. Customers will be able to call the centre from 8am to 8pm.

The Vanquis operation has an existing call centre in Chatham, in Kent. But the business is growing so rapidly that Provident decided to open a second centre at its new state-of-the-art Thornton Road head office, in Bradford, where it already employs 750 staff.

Provident’s chief executive Peter Crook said Bradford has an “exceptional talent pool”.