Credit Corp grows earnings despite slow business conditions

Debt purchaser Credit Corp reported weaker conditions in its debt purchasing and lending businesses during the December half but was able to increase revenue and earnings.

Credit Corp made a net profit of A$20.1 million for the six months to June - an increase of 17 per cent over the previous corresponding period. Revenue was up 11 per cent to $93.7 million over the same period.

Credit Corp chief executive Thomas Beregi said all of the earnings increase came from the company's lending division, which made a profit of $2 million for the half, compared with a loss of $2 million in the previous corresponding period.

Beregi said the improvement in the lending division's performance was due, in large part, to a slowdown in lending volumes. Net lending for the six months to December was $16.2 million, compared with $31.6 million in the June half and $17 million in six months to December 2013.

Credit Corp takes upfront loss provisions on its loans, so the reduced lending volume in the December half resulted in lower provisions.

Beregi said the slowdown was due to "dislocation" associated with the installation of an automated decision-making system. He said volumes were picking up again and it was possible that the business would report a loss for the full year.

Beregi said he was pleased with the overall progress of the lending division. Loan balances grew from $2 million in December 2011 to $72 million at the end of the latest half.

He said the new automated system had improved efficiency and underwriting accuracy.

Credit Corp offers unsecured loans with terms of four to 12 months for amounts up to $2000, as well as loans with terms up to three year for amounts up to $5000 and secured car loans with terms up to four years for amounts up to $20,000. Interest rates range from 15 per cent to 25 per cent.

On the debt purchasing side of the business, Credit Corp outlaid $56.1 million on debt ledgers, compared with $86.5 million during the previous corresponding period.

Beregi said: "We lost business but it was business at a price that did not make sense to us.

"More recently we have been holding share. Price growth has moderated and the purchases we have made will deliver our hurdle rate of return."

He said the company had moderate gearing and was in a position to expand debt purchases when conditions suited.

While debt purchase levels were down, collections were steady at around $70 million.

The company's US division, which has been in the establishment phase over the past couple of years, lost $1.5 million.