Loan demand drives Provident dividend higher

Provident Financial, Britain's biggest lender of credit collected weekly on the doorstep, enjoyed a year of strong loan growth, with profits and dividends both increasing by over a quarter.

This is in sharp contrast to the high street banks, where loan growth is stagnant and rising profits are being supported by falling bad debt provisions.

Provident's pre-tax profit grew by 30 per cent to £81.1m and its dividend by 28 per cent to 20.5p for the year to December.

The shares edged ahead 1p to 544p.

Provident's loan book went up by 10 per cent in the year, while bad debt provisions rose by 4.7 per cent to £31.1m.

The company makes loans on average of around £400-£500 on which it charges an annual rate of about 100 per cent.

People are willing to pay such high rates of interest because Provident is prepared to lend to poorer sections of the community.

The company's insurance side is also expanding rapidly. The number of motor policyholders rose from 618,000 to 800,000 last year, and insurance contributed profits of £11.1m, up £0.3m.

Analysts like the company because its lending is much less sensitive to interest rates than the banks'. Most of the cost of the lending relates to door-to-door collection rather than the interest charged. For this reason the rate of dividend growth is more stable on a three-year view than that of the banks.

Alex Robinson of Smith New Court described the figures as excellent.

John van Kuffeler, Provident's chief executive, said that loan growth was accelerating. The 10 per cent achieved last year compared with 7.2 per cent in 1993 and 6.5 per cent the previous year.

"We don't use advertising. This growth is achieved entirely through word of mouth," Mr van Kuffeler said.

Borrowings fell from £187m to £168m. The company is continuing to steer away from high street outlets and towards direct broking.