An ASX-listed SME lender has seen a fall in client numbers after implementing its own credit policies on a number of acquired portfolios.
Scottish Pacific this week announced a pro forma net profit after tax, excluding acquisition-related amortisation (NPATA) of $15.9 million for the first half of FY17, an increase of 34.7 per cent over the pro forma corresponding period.
The group’s loan book was valued at $980 million at 31 December 2016.
In a 14 November trading update, the SME lender revealed that the first four months of the December half saw the group achieve lower than expected loan book growth and lower invoicing volumes.
“Volumes were impacted by unexpectedly soft economic conditions (negative GDP growth recorded in the September quarter),” the group said.
“The impact of this unusual economic phase, was compounded by higher than anticipated levels of client attrition, which was in part due to the application of Scottish Pacific credit policies on the acquired portfolios.”
In 1H17, client numbers decreased by 3 per cent, primarily as a result of “higher levels of client attrition”.
“This level of attrition was mainly experienced in the acquired portfolios, in part due to the application of Scottish Pacific’s credit policies and procedures on clients in those portfolios during integration,” the company explained.
“With the integration phase now successfully completed, we do not expect a continuation of this trend.
“Pleasingly, our average client exposure which is a key driver of growth, increased from $0.524 million in July 2016 to $0.642 million in December 2016, offsetting this higher than planned level of client attrition”
The first six months of FY17 has seen a continued focus by Scottish Pacific’s management team on integrating the staff, clients and systems of Bibby Financial Services and the Suncorp and GE portfolios. The group now has approximately 290 staff members.
“While volume growth was below expectations for the first four months of 1H17, we have since seen a sustained improvement in general business conditions and new client settlements,” Scottish Pacific chief executive Peter Langham said.
“Our trading performance is in line with our revised forecasts and this performance has continued into the new year,” Mr Langham said.
“We continue to listen to clients and our November 2016 client survey, confirmed that our clients continue to have a high demand for our working capital, but those from the acquired portfolios would prefer to have an easing of credit policies that have applied to them following their integration into Scottish Pacific,” he said.
“With the integration of these acquired clients now complete and our experience with and understanding of them improving through the passage of time, we will seek to appropriately address this concern within our normal risk management policies and procedures.”
Mr Langham added that SMEs continue to remain underserved by traditional bank lending practices.
“Successful product innovation has been and will continue to be an important driver of business growth for the group in seeking to maximise this opportunity,” he concluded.
James Mitchell has over eight years’ experience as a financial reporter and is the editor of Wealth and Wellness at Momentum Media.
He has a sound pedigree to cover the business of mortgages and the converging financial services sector having reported for leading finance titles InvestorDaily, InvestorWeekly, Accountants Daily, ifa, Mortgage Business, Residential Property Manager, Real Estate Business, SMSF Adviser, Smart Property Investment, and The Adviser.
He has also been published in The Daily Telegraph and contributed online to FST Media and Mergermarket, part of the Financial Times Group.
James holds a BA (Hons) in English Literature and an MA in Journalism.
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