Debt collection firm Credit Corp says a pandemic-fuelled jump in bad debts – and other COVID-19 provisions – will weigh on full-year profit.
The company said it will make a 13.5% reduction in the carrying value of its existing purchased debt ledger assets. The firm said this represents an average cut of 18% in forecast cash collections from existing debt assets against pre-COVID expectations for the next two years before a recovery begins.
So instead of an expected $75 million to $80 million profit, it will now be closer to $15 million.
Credit Corp said the writedowns followed customers being less prepared to agree and maintain longer-term repayment plans during the pandemic.
“This initially produced a sharp decline in collections and rising loan book arrears,” Credit Corp said in a statement to the ASX.
“More recently, an increased willingness to make one-off repayments has brought collections for May and June back to pre-COVID levels and, with the exception of auto and SME pilots, has restored loan book arrears.”
Elsewhere, loan loss provisions are expected to rise from 18% of the gross loan book to 24%, while the company expects to take up a provision of $11 million for the “uneconomic component” of commitments not yet re-priced.
Factoring in impairment and provisions, Credit Corp’s full-year profit is expected to be between $10 million and $15 million instead of the initial profit figure between $75 million and $80 million.
Credit Corp said it expects “persistently elevated levels of unemployment”, the impact of which will be more severe for its credit-impaired customers.
Credit Corp said it will announce its final 2019-20 results on Tuesday, July 28 “and expects to provide full-year guidance for FY2021 at that time.”
The shares rose a cent to $15.74.