Credit card offering drives growth at Provident

The credit crunch is starting to seem like a long time ago for Provident Financial, the small loans specialist, which saw a sparkling performance from its Vanquis Bank division in the first half of 2012.

First half pre-tax profit rose 17.0% to £72.9m from £62.3m the year before, while earnings per share jumped 19.8% to 41.1p from 34.3p the year before.

The group's traditional door-step lending business is having to run to stand still in the current environment but the Vanquis Bank arm, which provides credit cards with lower credit limits than are typical in the industry, is going great guns and continues to generate capital over and above that required to fund its own growth.

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The Consumer Credit Division delivered first half profits of £50.4m, up a smidgen from £50.2m in the corresponding period of 2011, in line with management's internal plans. Average receivables over the period were barely changed at £783.5m, as was revenue at £351.8m.

Vanquis Bank saw profits surge 60.2% to £28.2m from £17.6m the year before, ahead of management's expectations, largely because the proportion of customers getting into difficulties with their repayments remained at record low levels.

The bank operates in a sector of the credit card market that is largely ignored by the big players and although competition is increasing, it remains limited at present. The business received a flow of 750,000 applications for credit card during the first half of 2012, down slightly from 760,000 in the first half of 2011.

Vanquis's average receivables over the period shot up 34.8% to £487.5m from £361.6m the year before. Revenue rose 28.6% to £127.7m from £99.3m a year earlier, while bad debt impairments narrowed to £45.6m from £38.9m, which meant that revenue minus impairment climbed 35.9% to £82.1m from £60.4m in the corresponding period of 2011.

For the group as a whole, customer numbers rose 5.5% to 2.6m at the end of June from 2.4m a year earlier, while average receivables climbed 10.6% to £1,273.0m from £1,151.5m the year before.

The group's funding rate during the first half of 2012 was 7.4%, down from 7.8% in the first half of 2011 due to the benefit of the Vanquis Bank retail deposits programme which commenced in July 2011. The group's funding rate is expected to moderate further to around 7.2% for the second half of the year.

The group has a strong, diversified funding base that allows it to meet its contractual debt maturities and execute in full on its growth plans into 2015, the company said.

Provident said it would remain prudent in choosing who it lends to, but said "the stable performance of the Consumer Credit Division, at a time when its customers' disposable incomes are under pressure, and the strong growth and returns being delivered by Vanquis Bank provide a sound basis for delivering good quality growth for 2012 as a whole."

The interim dividend per share has been increased by 7.9% to 28.8p (2011: 26.7p) consistent with the group's stated policy to grow dividends whilst maintaining a dividend cover (i.e. retained earnings dividend by dividend payments) of at least 1.25 times.

JH