THE temptation to ramp up growth aggressively must surely be there, but Blackfriar believes Provident Financial deserves credit for not giving in to it.
With the demise of rivals such as Cattles, the Bradford-based group is one of a dwindling number of lenders to a risky segment of society.
It is at the sharp end of the toughest consumer climate for years. For many of its customers, typically on low incomes or benefits, food, fuel and energy bills form a big slice of their income.
Inflation is now at a three-year high 5.2 per cent, and higher prices mean they have much less spending power.
“We don’t want to chase high rates of growth at the expense of the quality of the loan book,” said chief executive Peter Crook. “We could bring in new customers but we’re choosing quite deliberately not to do that. We’re sticking to primarily lending to people we’ve done business with before.”
Provident is turning away four in five potential customers, and Crook is quite prepared to accept falling numbers in its consumer credit arm. Customers were down 2.2 per cent year-on-year in the nine months to the end of September. However, average receivables were up 3.7 per cent as it grew its loan book.
Provident’s prudence is paying off: a “marked improvement” in credit quality seen this year has been maintained. The rate of bad debts in its doorstep lending arm in the third quarter was broadly in line with the prior quarter.
Customers too seem to be moderating their behaviour, resulting in lower demand for credit.
Provident also has a very short loan book, lending sums of around £400-£500. This allows it to keep a close eye on impaired loans, ensuring they do not spiral out of control and cause the kind of problems that brought Batley-based rival Cattles to its knees.
But while Provident’s consumer credit arm is hunkering down, its Vanquis Bank credit card arm is satisfying the market’s appetite for rapid growth. Customer numbers have rocketed 31.5 per cent to 659,000. Combined with increasing credit lines to customers, average receivables grew 35 per cent in the nine months to the end of September.
Nor has Provident sacrificed quality for growth, maintaining “consistently tight underwriting”. As a result, Vanquis’ bad debt levels are at an all-time low.
Meanwhile, timely use of its banking licence has attracted about £50m of deposits since July, setting Provident on course to fund 80 per cent of credit card lending through deposits by the end of 2012.
The doorstep lender is also creating jobs through the growth of Vanquis, with scope to add up to 250 roles at a new call centre in Bradford. Provident is growing, but selectively.
It is creating wealth in Yorkshire without over-extending risk.
n There were two worrying news stories for the supermarket sector this week.
Firstly Asda said family spending power fell by £15 a week last month to £163 – the biggest drop since records began in 2007.
The second was that shoppers are calling for more discount food stores, with nearly a half saying they would shop at budget stores if there was one near them.
The latest shopper research from IGD shows the number of shoppers going to discount stores such as Lidl and Aldi has increased over the last year and is set to grow further.
This is all worrying news for the supermarket sector, one of the few areas to ride out the downturn. Only the supermarkets have managed to continue their expansion programmes and increase staff numbers in bitter economic circumstances.
Discounters, once the embarrassing domain of people on the breadline, have shaken off their poor image with a quality revamp. IGD said 81 per cent of regular discount shoppers believe the quality has improved.
Wealth and social standing appears to make little difference to people’s attitude to discount shopping, a seismic shift from the perception a few years ago. Around 23 per cent of the top tier AB demographic band said they will use discount stores in the next 12 months while 29 per cent of the lowest demographic band DE said they would use them, a difference of just six percentage points
So who will the be the worst hit? All the four major multiples could face a squeeze. Tesco, the biggest, Asda, the second largest and Morrisons the fourth probably face the biggest threat as all three trade on their bargain credentials.
If the discounters are under-cutting them they need to up their game.
Leeds-based Asda’s guarantee that it will be 10 per cent cheaper than rivals or you get you money back will certainly help pit it against Tesco, despite the latter’s huge price campaign.
The one area that shouldn’t suffer is the upmarket tier of Sainsbury’s, Marks & Spencer and Waitrose. Perhaps Waitrose has been the most canny with its stylish looking Essentials range. The poshest pantries now sport Essentials tinned tomatoes as the move downmarket becomes acceptable.