Profits fall as pandemic impacts lender

Lender, Non-Standard Finance, (NSF) has reported a normalised loss before tax of £35.2 million, a fall of 339% in its audited full year results to 31st December 2020.

Normalised revenue was down 11% to £164.1 million (2019: £183.7 million) and reported revenue down to £162.7 million (2019: £180.8 million).

The Covid-19 pandemic had a severe impact on the company’s net loan book which fell by 28%, though all three of NSF’s businesses were able to adapt, enabling the Group to continue to trade within its financial covenants since the half year results.

NSF has also confirmed its Guarantor Loans Division is to be placed into a managed run-off, following a probe launched by the Financial Conduct Authority. (FCA)

The FCA visited the Group in March last year as part of a multi-firm review and raised a number of concerns about operating procedures and processes at the Guarantor Loans Division.

NSF has recorded total exceptional charges of £97.8 million, this includes a charge of £15.4 million based on the estimated costs of a customer redress programme; and the non-cash write-off of all remaining goodwill assets and acquired intangibles totalling £74.8m (2019: £65.8m) to give a reported loss before tax of £135.7 million.

The company that whilst the estimated cost of redress is based upon a detailed methodology and analyses developed in conjunction with the Group’s advisers, as the FCA has not yet approved the methodology proposed, there is a risk of a less favourable outcome. Independent reviews are being conducted to determine any read-across for the Group’s other divisions, taking account of recent decisions at the Financial Ombudsman Service.

The directors Recognise that, whilst the review work done so far has not identified any systemic issues requiring an increase in provision, there remains a risk the final outcome of these reviews may result in the identification of customers who may require redress, and the cost of redress for the Group could be materially higher than is currently provided for in the financial statements.

John van Kuffeler, Group Chief Executive Officer, said “The impact of the pandemic on our business was as significant as it was swift and was a major factor behind the large reported loss in 2020.  Despite best endeavours we have also fallen short in a number of regulatory areas which have led to increased complaint costs and a future redress programme, both of which have had a material financial impact.  However, I am immensely proud of the way in which our staff and self-employed agents responded to these issues so that we were able to navigate what was a highly challenging business environment. However, we remained focused on good customer outcomes and embarked upon a cautious return to lending during the second half of 2020.  Unfortunately, the impact of the pandemic and the regulatory-led changes in guarantor loans has meant that the division is being placed into a managed run-off.”

“Once our regulatory issues are resolved, we intend to execute a substantial capital raise in the region of £80m (the ‘Capital Raise’) in the third quarter of 2021.  If successful, it is expected that the Capital Raise will strengthen the Group’s balance sheet and provide a platform for controlled growth.  It is encouraging to see that we are trading ahead of budget in the first half of 2021, with a steady growth in monthly sales and historically low levels of impairment in both branch-based lending and home credit whilst the number of complaints has reduced substantially.”

“As evidenced by the FCA’s latest review of the consumer credit market4, the recession is already impacting people’s ability to access credit.  This has created a significant opportunity for companies in the non-standard credit sector that fulfils a vital role in supporting millions of consumers who have limited savings5. Previous recessions have shown that prime lenders tend to be particularly risk averse, tightening their lending criteria and leaving a large and expanding pool of higher quality applicants seeking access to regulated and responsible credit markets.  Assuming the Capital Raise is completed as planned, the Group will be well placed to seize any such opportunities and capture any ensuing increase in demand.”