A proposed change to credit laws in Poland could put a dent in the home credit profits of International Personal Finance (LON:IPF).
The FTSE 250 company put out a statement on Monday alerting the market to the possibility of an amendment to recently agreed proposals designed to put a cap on the total cost of credit agreements.
The existing proposal as it stands puts a cap on mandatory non-interest charges, and International Personal Finance (IPF) developed a product that fell into line with the draft legislation, but the lower chamber of the Polish department has put a spanner in the works by voting in favour of an amendment that extended the cap to all non-interest costs, irrespective of whether they are mandatory.
The level of the cap has not changed, and the proposed amendment still needs to go to the upper chamber, who could accept the amendment, alter it further or remove it completely.
In what IPF would probably regard as the worst case scenario, should the upper chamber rubber stamp the change, the bill would go to the President for approval.
IPF is reviewing the draft legislation to assess whether its product structure will be affected by the proposed cap.
“In addition, we are proactively developing an alternative product structure to mitigate any adverse financial impact to the greatest extent possible,” the company said.
“Dependent on legal interpretation of the final version, however, there can be no assurance that the legislation, if introduced in its present form, would not have some adverse financial impact on IPF,” the company added.
Broker Shore Capital has done some back of the envelope calculations and calculated that the proposed amendment could see the product's total income, defined as plus fees, will fall by 26%, all other things being equal.
This, Shore suggests, would be enough to wipe out product profitability and represents “a significant and unfortunate twist in the investment story for IPF”.
“Putting this into context, we currently expect Poland to generate £73.5mln of adjusted PBT [profit before tax] in 2015F, which is equivalent to 60% of our group adjusted PBT estimate of £122.4mln. As such, IPF may need to consider further product restructuring to mitigate the impact of the proposed change, should it be accepted and implemented by the Upper Chamber,” Shore said.
Shares in IPF tumbled 15% to 401.8p during the morning session.