The “excess of cash” in the economy from COVID stimulus measures had a marked impact on Latitude Financial Services during the June half-year, with an acceleration in repayments contributing to falls in receivables and revenue.
Latitude chief executive Ahmed Fahour said the company had been looking for the consumer finance market to normalise this year but it is more likely to happen in 2023.
In the June half 2019, repayments as a percentage of opening receivables (excluding credit cards) were 89 per cent. In the latest half, repayments were 100 per cent of opening receivables.
Latitude reported net profit of A$45.9 million for the six months June – down 42.3 per cent from $79.5 million in the previous corresponding period. The company’s preferred measure, cash profit, fell 11.4 per cent year-on-year to $93 million.
Net interest income fell 11.4 per cent to $350.2 million and total operating income fell 8.8 per cent to $368.5 million.
Loan volume grew by 2 per cent to $3.7 billion and the value of receivables fell 2.8 per cent year-on-year to $6.3 billion.
The loan impairment expense was cut from $69.6 million in the June half last year to $38.9 million in the latest half, after the company reduced its expected credit loss provision. Net charge-offs of $74.2 million were down 10 per cent year-on-year.
Fahour said one reasons the provision was cut was that Latitude has made a significant change to the profile of its borrowers. In the June half 2019, 27 per cent of new customers were CR1 and 37 per cent were CR2 – the highest risk scores that Latitude applies to credit applicants.
In the June half this year, 33 per cent of new customers were CR1 and 38 per cent were CR2. The change to a higher quality book has been reflected in lower delinquency rates and the company felt this provided justification for a reduction in the expected loss provision.
Another impact of a higher quality book is that, based on Latitude’s pricing for risk formula, higher quality credits pay less interest.
Fahour said this was a good trade-off for the company.
Somewhat surprisingly, the company boasted of its disciplined cost control, despite reporting a 2 per cent increase in its employee benefit expense and a three-fold increase in administrative and professional expenses. All up, operating expenses rose 19.8 per cent to $261 million.
Fahour said one of the highlights was the integration of Symple Loans, which Latitude acquired last year. Latitude was attracted to Symple because of its “state of the art” lending platform and the prospect of using it to cut settlement times on personal and auto loans.
The plan is for Symple’s loan origination system to become the platform for all Latitude personal and auto loans. Fahour said that during the half the platform became available for personal and auto loan products in Australia.
“It is delivering results,” Fahour said.
Fahour announced his retirement yesterday, saying he will leave the company by the end of August next year. After taking the company to an ASX listing in 2021 and making the