Lender Prospa Group wrote off close to 10 per cent of the value of its loan book as bad debts in the year to June, as tougher economic conditions impacted its small business customers.
Prospa’s profit and loss statement included a loan impairment charge of A$139.4 million – up from $47.3 million the previous year.
The charge was made up of $96.5 million of receivables written off as bad debts (up from $47.1 million the previous year) plus $58.5 million of provisions (up from $17.2 million), less $15.5 million of recoveries (down from $17.1 million).
The net bad debt component represented 9.9 per cent of average gross loans – up from 5.7 per cent in 2021/22.
The financial report said: “The company has implemented a set of targeted measures to manage credit performance across its portfolio. These adjustments have resulted in a reduction in total customer approvals in certain sectors.
“Given the emphasis that the current economic environment necessitates on credit quality, we will also be investing in refining our proprietary credit decision engine.”
Originations of $753.7 million were up just 2.9 per cent on the previous year. The loan book grew 22.9 per cent to $862.2 million.
Prospa reported interest income of $240.4 million for the year to June, up from $151.9 million in 2021/22, and total income of $270.2 million (up from $166.9 million).
The high loan impairment expense, as well as a $24.9 million impairment of software intangibles, contributed to a pre-tax loss of $64.1 million. Thanks to a tax benefit of $19.2 million the loss for the year was $44.8 million.
The business generated cash flow of $96.8 million – up from $58.8 million the previous year.
The average cost of funds rose from 5 per cent in 2021/22 to 7 per cent in the year to June. The net interest margin fell 110 basis points.
At June 30, Prospa had $921.4 million of secured funding facilities, with $140 million undrawn.
The company said that in the coming year it would complete a new business platform, which should produce efficiencies, target higher quality customers and introduce new products to increase utility for customers.