Guarantor lender Amigo Holdings PLC (LON:AMGO) warned that impairments would be higher than previously thought as it braces for an expected regulatory clampdown and a possible recession.
The company said it now expects its loan book growth to be flat, compared to a previous target of high teens percentage growth. Its impairment to revenue ratio forecast was lifted from mid-20s per cent to "low to mid 30s" while the cost to income ratio increased from below 20 per cent to "low 20s".
Amigo also ditched its commitments to lowering its net debt and increasing its dividend in the short-term.
The group issued the warning as it reported a 32% rise in pre-tax profit to £22.6mln for the first quarter ended 30 June. Revenue gained 17.3% to £210.3mln and the loan book grew by 14.1% to £728.4mln as customer numbers increased 17.3%.
However, the impairment to revenue ratio rose to 30.5% from 20.4% with the firm blaming “operational challenges” within its collections business and a weaker economic outlook that increased provisions for expected future losses..
Amigo is the largest provider of guarantor loans, which involves a family member or friend being liable to repay a debt if the borrower cannot.
Regulatory scrutiny
Such loans have come under increased scrutiny from the Financial Conduct Authority (FCA) over concerns that lenders are not taking enough precautions to ensure customers can afford to repay their debt.
Amigo said it “supports the FCA’s efforts to ensure that consumers are protected from undue harm, that there is effective competition and that the consumer finance market operates effectively”.
“Amigo has always sought to take appropriate steps to comply with both letter and spirit of, first the Office of Fair Trading and then, FCA rules and regulations and has gradually tightened its internal control framework as regulatory standards and obligations have increased over time,” it said.
Hard Brexit
The lender also touched on the increased likelihood of a no-deal Brexit after Boris Johnson announced he planned to prorogue parliament in order to push through his plan for the UK's departure from the European Union.
Amigo took a £400,000 impairment provision after assessing how a hard Brexit would affect the business.
"The group will continue to monitor the potential impact over the coming months and expects any further impact to be recognised in the later part of this year," it said.