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April 8, 2019

Fitch reiterates Provident rating despite positive performances

Fitch has reissued Provident Financial as a 'BBB-' credit rating, the lowest investment grade classification on the scale.

By Christopher Marchant

Fitch has reissued Provident Financial as a ‘BBB-‘ credit rating, the lowest investment grade classification on the scale, while noting the positive performance of its motor finance and credit card businesses.

Provident Financial Group is the parent company of sub-prime motor finance lender Moneybarn. In February this year Provident Financial Group rejected a £1.3bn bid from smaller lending group Non-Standard Finance (NSF), calling it an “irresponsible” approach.

According to Fitch: “The affirmation reflects the continuing recovery of Provident’s financial performance and home-collected credit franchise following poorly executed changes to its home credit business model in mid-2017. The ratings also take into account Provident’s adequate capitalisation and liquidity profile, which benefits from the company’s cash-generative business model.

“The Negative Outlook reflects Fitch’s view that Provident’s home credit franchise has not yet sufficiently recovered to restore the company’s historically sound earnings diversification between its home credit, credit card (Vanquis Bank) and car loan (Moneybarn) business divisions. In 2018, Provident’s underlying profitability improved, largely as a result of reduced losses in its home credit division and a solid performance of Vanquis Bank and Moneybarn.”

In March Moneybarn revealed a 28.3% increase in profit before tax to £28.1m for the 12 months to 31 December 2018.

Of the takeover bid by Non-Standard Finance, Fitch stated it would assess the impact of the bid on Provident’s credit profile should it become apparent that the bid is likely to be successful. The Financial Conduct Authority (FCA) has warned Non-Standard Finance that its takeover bid of Provident Financial may be in violation of consumer protection regulations.

Fitch also assessed that Provident has limited exposure to fallout from Brexit due to limited home credit business in Ireland. The company also noted that while home credit business at Provident is now smaller, it also means the company is also less cash-generative.

As early as 2017, Peter Crook, the long-time chief executive officer of Provident Financial stepped down from his role with immediate effect, following a profit warning and a FCA investigation ongoing. Provident reached a settlement with the FCA in early 2018.

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