An Australian lender that finances people the major banks deem too risky is cashing in on high interest rates, loaning an additional $100m and expecting returns to jump more than 25 per cent.
Credit Corp Group (CCP) released its yearly results on Tuesday, showing the debt purchasing, lending and collection agency’s lending book grew to a record $445m this financial year.
The company forecasts this book value will translate to a 27 per cent rise in after-tax profit on its loans this year, as higher interest rate income bears fruit.
The group recorded an underlying profit of $81.2m, down from $91.3m a year earlier, while revenue rose 10 per cent to $519m.
The financial results “fell well short of initial expectations”, it says in the report.
Credit Corp is deliberately holding back on the number of car loans it issues, as used car prices stay high, it says in the report.
The company operates mainly in Australia and New Zealand with a smaller US presence, has three million customers and $445m in loans. Its flagship is Wallet Wizard, the outfit that offers quick $500 to $8000 loans. CarStart is also part of the stable.
“Persistently elevated used car prices have extended loan durations, increasing the risk of default,” Credit Corp says in the results.
Most of Credit Corp’s customers have previously defaulted on repayments and do not have stable earnings. The company buys debt from telcos, financiers and utility companies at below face value.
In what the company deems “challenging conditions”, Australian and New Zealand bank arrears and losses are actually low, and interest-bearing card balances are 32 per cent below pre-Covid levels, it says in the report. Overdue loan repayments are also at normal levels.
Among Credit Corp’s “credit impaired consumer segment” in Australia and New Zealand, $1.3bn is subject to ongoing repayment arrangements.
Chief executive Thomas Beregi said there was not as much debt for sale in Australia and New Zealand as before the pandemic.
The company switched to trying to make more money from its lending arms, but a trend of more and more US customers falling behind on repayments spiked.
A key executive relocated to the US to steady the ship, and the group spent up bolstering its operations in Australian and New Zealand debt-buying.
“Investments were made in upgrading data analytics, further expanding digital collection capabilities and rolling out a new digital dialling platform,” Mr Beregi said.
Dividends per share fell from 70 cents to 38 cents.
Credit Corp’s share price rose 13 per cent on Tuesday to a three-month high.