Loan collections have remained “robust” despite rising numbers of delinquencies said Amigo Loans, but the UK subprime-focused company warned that the cost of living crisis was likely to intensify.
“It’s a very difficult position for people and to be frank I don’t think we have seen the worst of it,” said chief executive Gary Jennison on Friday. “We will see a real impact when the energy cap goes up again in October and people start to use heating over the winter.”
His warning comes after UK inflation hit another 40-year high in May amid surging food and fuel prices, with the Bank of England expecting the measure to exceed 11 per cent in October.
Amigo has not been able to carry out new lending since November 2020 due to uncertainty caused by the pandemic and a dispute over customers’ compensation for historic mis-selling.
The company is currently seeking consent from the Financial Conduct Authority to recommence lending after the High Court sanctioned its proposed new business scheme in May. Under the approved scheme, Amigo will pay at least £112mn in compensation provided that it can restart lending within nine months of approval and that it can raise new equity within 12 months of approval.
Amigo announced pre-tax profits of £170mn in the year to March 31, compared to a loss of £283.6mn in the previous 12 months. However, Jennison said this was not a reflection of the Bournemouth-based company’s performance but was rather due to a release of provisions set aside for complaints following the High Court decision. Revenues fell 47.6 per cent to £89.5mn.
The company is aiming to launch two products, a personal loan and a guarantor loan, under a new brand, RewardRate. Borrowers will have the opportunity to reduce their annual interest rate by up to 15 percentage points. New lending would be capped at £35mn until it completes a capital raise.
“The story today is we’re getting close to drawing a line under the problems of the past and we want to do the right thing for customers,” said Jennison, adding that the company was “significantly engaged” with the FCA.
Subprime lenders which flourished in the wake of the 2008 financial crisis have struggled in recent years, facing a flurry of complaints. The dearth of options for those with poor or limited credit histories has led to concerns that borrowers may turn to products such as buy now, pay later or even loan sharks, with non-profit lenders only able to meet a fraction of demand at present.
“There’s a growing need for fair affordable products, and there aren’t many lenders,” said Jennison, who added that Amigo would have “a strong social purpose” when it returned to the market.
Shares in Amigo have fallen by more than 45 per cent over the past year.
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