‘We wrestle on’: S&U blames regulatory pressure for ‘significant’ profit hit
Specialist auto and property lender S&U has warned that regulatory pressures have had a “significant impact” on its repayments and profitability, as the firm’s earnings dropped sharply in the first quarter.
The lender said in a trading update on Thursday that its pretax profit in the first quarter dropped to £6.9m from £10.5m in the previous year. It added that increased provisions for bad loans tied to lower repayments at its motor finance business Advantage contributed £3.6m to the fall.
Total repayments including settlements in the first quarter fell four per cent year-on-year. S&U said Advantage’s live monthly collections dropped from 92.1 per cent of due in the year to 31 January to 87.7 per cent of due in the first fiscal quarter, with repossession receipts similarly affected.
It blamed its “cautious approach and temporary restrictions on repayments” on discussions with the Financial Conduct Authority (FCA) on interpreting and adapting to its new Consumer Duty regime and a sector-wide review of “borrowers in financial difficulty”.
“Belated recognition by regulators that for some customers repossession may be the best outcome, is gradually seeing a return to normality,” S&U said. “Hence Advantage’s empathetic and flexible customer relations are also expected to resume in the second half of the year.”
The lender added that Advantage increased lending prices towards the end of the quarter, which is expected to cause “some moderation” in summer auto lending volumes.
It said application numbers at Advantage were a record in the first quarter, and income and transaction numbers were above last year despite tightening loan-to-value and affordability criteria.
S&U’s chair, Anthony Coombs, commented: “Although fully cognisant of the challenges currently being negotiated at Advantage, an improving economic outlook both for consumers and businesses, a strong labour market and greater political stability will all benefit S&U over the coming year. We wrestle on with confidence.”
S&U added that its customer numbers and net receivables continued to grow, albeit more slowly at £478m, while its net assets grew £7m to £235m during the quarter.
The firm has previously said that it is not exposed to the FCA’s separate review into discretionary commission arrangements on car loans that analysts have estimated could cost the sector up to £16bn in compensation fees.
The trading update comes ahead of S&U’s annual meeting later today.