Debt buyer Credit Corp has reported a heavy fall in profit, after accounting for the impairment of its purchased debt ledger assets and additional provisioning of its loan book. Its accounting is based on an expected recovery starting in two years.
The company made a net profit of A$15.4 million in the year to June, compared with a profit of $70.3 million in 2018/19. Net profit before impairments and provisions was $79.6 million.
The US purchased debt ledger operation was particularly hard hit, with revenue falling 25 per cent and the business reporting a loss of $24.3 million.
Credit Corp chief executive Thomas Beregi said purchased debt ledger pricing models have been adjusted to account for high levels of unemployment and the planned reduction in government support and private sector forbearance.
These settings have been applied to the carrying value of the company’s financial assets and the net economic benefit of ongoing debt purchasing commitments.
Impairment of the purchased debt ledger was $68.1 million – 13.5 per cent of the carrying value. This reflects an expectation of an 18 per cent reduction in collections for two years before recovery.
Additional consumer loan provisioning was $11.2 million, increasing the loan loss provisioning from 18.7 per cent of consumer loan balances to 24.1 per cent.
Credit Corp has suspended auto and small business lending and halved approval rates for its core consumer loan product, Wallet Wizard.
The value of the consumer loan book fell from $230 million at the end of December last year to $181 million at the end of June, reflecting the tighter underwriting and lower demand. The new customer approval rate in June was 38 per cent of pre-COVID levels.
The company also added a provision of $11.8 million for the “uneconomic portion of forward purchase contracts.”
Beregi said the company has cash and credit lines worth $400 million, giving it plenty of investment capacity. All major clients have an ongoing commitment to debt sales.
The company has forecast debt ledger investment of $120 million to $180 million in the current financial year.
At June 30, the company’s purchased debt portfolio had a face value of $7.7 billion – up from $6.4 billion a year earlier but down from $7.8 billion in December. It was made up of 1.2 million customer accounts.
Of those accounts, 195,000 were on payment arrangements – up from 157,000 a year earlier but down from 200,000 in December.
Beregi said the company had supplemented its approach to hardship with some additional measures, including an interest freeze on all debt purchase accounts, repayment moratoriums and suspension of legal, repossession and credit reporting activity.