With JCB Finance Limited reporting a
solid pre-tax profit in 2008, it is important to try and decipher
whether the captive has such a solid risk portfolio as well.
Just last month, Leasing Life reported
that arrears for UK finance companies had grown to 4 percent in
February 2009, up from 2.6 percent in February 2008 – an “expected”
trend given the economic conditions, said the FLA.
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An analysis of JCB’s credit risk shows
an interesting trend. The volume of assets falling into its best
asset quality grades (which includes customers which are paying on
time and up to two instalments late), which accounted for 99.7
percent of the portfolio, increased by 4 percent year-on-year, from
£449 million to £466.5 million.
But the context of these figures is
important – after all, even though JCB Finance saw a 4 percent
rise, the company’s overall credit portfolio grew by an equal
amount, 4 percent, from £450.2 million to £468.1 million.
Does this mean it simply cancels
itself out? Not really – for a full understanding, you have to look
at the ‘real’ figures, rather than the credit risk portfolio
alone.
Here, despite assets more than two
payments late growing by over 120 percent, in total, the arrears
portfolio fell by 43 percent. This is thanks to the 56 percent fall
in the value of assets late by a single payment only, which
accounted for an overwhelming 68 percent of the total, or £5.5
million of the £8 million non-impaired arrears portfolio.
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By GlobalDataYet when looking at the figures, the
sting comes from impaired assets, whose value grew by a whopping
767 percent year-on-year, to £2.7 million. Of these assets, the
category with the largest increase, of nearly 1,500 percent, was
assets between one and two payments late; which grew from £106,666
to £1.7 million.
The value of impaired assets grew by
767 percent; but let’s not forget that JCB’s total credit portfolio
is worth nearly half a billion pounds. This means that total
impaired assets were worth only 0.5 percent of JCB’s total
receivables portfolio, a healthy level by any standard.
Jason T Hesse
