Provident to shut doorstep lending arm in home credit market exit

By Muvija M

(Reuters) -Provident Financial on Monday called it quits on its doorstep lending division, putting 2,100 jobs at risk, as the pandemic hit turnaround efforts for a business that survived the Wall Street crash of 1929 and the global financial crisis.

The company, a sub-prime lender since it was established in 1880, said it plans to put the business into managed run-off or consider a sale if there was interest. The exit is expected to cost Provident up to 100 million pounds ($141 million).

Shares in Provident slid 6% to the bottom of the UK's mid-cap index by 0840 GMT.

Provident had been trying to revive the business after botching an overhaul in 2017 when it sought to replace its army of self-employed doorstep collection agents with direct employees.

But its efforts, including a plan to get the unit to break even last year, were derailed by the COVID-19 crisis, which hammered lending volumes and drove up costs.

Britain's subprime lenders, which serve low income households with poor credit profiles, have struggled to meet funding costs during the pandemic, making it hard for them to meet growing loan demand from their clients.

"The home credit market in our view is in irreversible decline," Provident Chief Executive Malcolm Le May said on a media call.

Rising complaints by claims management companies, the financial impact of COVID-19 on the lending division and the evolving regulatory environment rendered the business commercially unviable, he said.

Several such firms including payday lenders Wonga and Quickquid have closed in recent years due to complaints and regulatory scrutiny of their business model.

'MORE SUSTAINABLE MODEL'

Provident, which fended off a takeover attempt by smaller rival Non-Standard Finance in 2019, said it planned to build on its existing unsecured personal loan product expertise during 2021, in the "mid-cost" segment of the market.

The company, which has a banking licence, said the unsecured loan business was an important step towards its plans to become a broader banking group to the financially underserved customer.

Analysts at Panmure Gordon said: "This (focus) entails a lower rate of receivables growth but a more sustainable model."

Goodbody analyst John Cronin said the new initiative was likely to be channelled through Provident's credit card business Vanquis.

Provident outlined in March a 50 million pound plan to settle a jump in complaints and claims against the subprime unit and said the business was also under a regulatory probe over conduct issues.

A UK court has granted leave for the settlement plan, with a meeting of the company's creditors set for July, Provident said on Monday.

Provident posted a 2020 loss before tax of 113.5 million pounds versus a year-ago profit of 119 million pounds.

($1 = 0.7107 pounds)

(Reporting by Muvija M in Bengaluru, Editing by Jane Merriman, Sayantani Ghosh and Emelia Sithole-Matarise)