Receivables in Advantange, the non-prime car finance arm of S&U Financial, have grown 22.8% on 2017, to £258m, as the lender tightens underwriting on its applications.
Advantage said customers had reached 56,000 as of May, up 21% from the previous period. The company reported a fall in approval rates to 25%, from 2017’s 29%, offset by increased conversion rate of 10%.
Impairment to revenue ratio increased from 24.6% to 25.8% on a rolling 12-month basis, still within the 26.4% average for the last decade. For the full year 2017, Advantage reported £19.6m in impairments.
Analysts attributed the higher ratio to shifting mix in loan quality.
“Higher quality loans from, for example, 2014 [are falling] away while the impact of the recent selectivity in underwriting has yet to fully emerge,” said a note from Capital Access Group, which called S&U’s trading update “reassuring”.
The note added that although it was “too soon to call peak impairment”, that might be close by, possibly occurring in 2018/19.
Speaking to Motor Finance in March, executives at S&U attributed the ongoing increase in impairments at Advantage to lower credit quality previously underwritten and pressure on incomes.
“The underwriting process … is one we are constantly refining, and in response to macroeconomic issues, we have actually increased some thresholds for affordability, so the actual approval rates have gone down,” an executive said at the time.
“The fact that impairment has gone up by slightly more than we had anticipated … suggests that we haven’t quite got our rate of risk right, and again that is one of the reasons behind our tweaking on the underwriting,” he added.
Commenting on the interim 2018 results, S&U chairman Anthony Coombs said: “Despite a slowing UK economy, the value used car and residential markets in which we operate remain strong and resilient.
“Our continuing focus on customer selection and excellent service gives us great confidence for sustainable future growth.”