Loan company hit by impairment

Disappointing debt collection and stricter accounting under IFRS will force
loan provider Provident Financial to record a hit of between £15m and £20m in
its 2005 accounts.

Provident said its Yes Car credit division had recorded a pre-tax los of
£4.6m for the five months to 31 May 2005, which was partly caused by a higher
than expected IFRS impairment charge.

The FTSE250 company also warned that its operations in Poland would be
subject to larger IFRS impairment charges than expected.

One analyst said that the switch to IFRS had reduced Provident’s reported
profits by 9% because the new reporting regime was more responsive to reflecting
bad debts.

‘Arrears appear earlier under IFRS, so the recognition and size of loan loss
provisions is accelerated,’ the analyst said.

‘There is no chance of smoothing figures as the accounting policy is prudent
and more sensitive.’

Under UK GAAP, Provident was able to reflect arrears as a general provision,
but under the new standards it will have to adhere to strict rules when
determining loan impairments.

Under IFRS loans loss provisions are calculated according to cashflows, which
are discounted in line with interest rates and collection periods.

After announcing the impacts of the impairments, Provident’s share price shed
8.6%, to value the company at £1.87bn. Dresdner Kleinwort Wasserstein maintained
its ‘hold’ rating on the stock, while Bridgewell Securities cut its earnings per
share forecasts by 7p to 56p.

Related reading