• Total originations of $80 million in 1Q21, up 265% on 4Q20
• Originations, excluding loans originated under the Government’s Guarantee Scheme, up 107% on previous quarter
• Annual portfolio yield of 31.5% maintained
• Significantly reduced loan deferrals with 1,681 accounts in ANZ on full or partial deferral
Fintech Prospa (ASX: PGL) has seen loan originations jump 265% in the September quarter, compared to the previous quarter, in signs that confidence is returning to the small business sector.
In quarterly results released on Thursday, the small business lender said total originations for Q1 FY2021 hit $80 million, a considerable rise on 4Q FY20’s $21.9 million, however, that figure is considerably lower – 38.5% down – than 12 months ago, when Q1 FY20 saw Prospa write $130 million in loans.
Average Gross Loans of $353.2 million for 1Q21 were down 15.8% on the $419.4 million comparative figure from 12 months ago.
CEO Greg Moshal said that while challenging conditions caused by Covid-19 remain, there were encouraging signs of a steady, yet modest increase in confidence amongst Prospa’s small business customers.
“Our 1Q21 performance reflects our focus on writing profitable business as well as our deliberately restrained risk appetite in 4Q20 in response to the COVID-19 pandemic. We saw improvement in our originations in 1Q21 compared to 4Q20 on a total basis and after excluding loans originated under the GGS [the Australian Federal Government’s Coronavirus SME Guarantee Scheme], and this improvement has continued in the first three weeks of October despite the GGS ending on 30 September 2020,” he said.
“Our liquidity remains strong, and as Australia’s largest online small business lender, we stand ready to support our customers as business conditions continue to improve.”
Monthly originations steadily increased from lows in April, May and June with increased month-on-month growth over the quarter. Moshal says September, in particular, benefited from the end of the first phase of the Government’s Guarantee Scheme. He also noted that Q1 had a significantly lower contribution from Victoria due to the lockdown.
Prospa originated $57.0 million of loans and lines of credit in 1Q21 under the GGS compared to $10.8 million in 4Q20. The company also originated $23 million of non-GGS loans in 1Q21, an increase of 107.1% on the prior quarter (4Q20: $11.1 million). The company has seen encouraging signs of continued momentum.
Total quarterly revenue before transaction costs fell by 27.8% on 12 months ago. The company said that reflected lower originations in 4Q20 due to a deliberate decision to restrain risk appetite as well as weaker customer demand during the height of the pandemic.
Loan deferals fall
Loan impairment expense for the period improved to $3.8 million during the quarter, a decrease of 57.8% on the prior corresponding period (1Q20: $9.0 million).
The company said it continues to analyse customer data for real-time insights on the pandemic’s impact and sees more small businesses looking for growth capital as the economic recovery continues.
The lender has also supported its borrowers with either full deferrals of six weeks duration or partial deferrals of 50% of the typical repayment, with interest on the outstanding principal being capitalised.
As at 30 September 2020, 1,516 accounts in Australia are on full deferral or partial deferral arrangements which compares to 4,877 at the peak on 15 May 2020 and 3,904 at 30 June 2020.
Of the 1,516 remaining accounts, 628 are Victoria based accounts, down from a peak on 15 May 2020 of 1,371.
In New Zealand, 165 accounts are on full deferral or partial deferral arrangements which compares to 678 at the peak on 15 May 2020, and 392 at 30 June 2020. From 30 June 2020 no additional loss provisioning overlay has been provided as at 30 September 2020. Net bad debt expense for the quarter (excluding provision expense) was $7.6 million and in line with management’s expectations.
Greg Moshal praised government support for small business through the significant business tax relief initiatives and investment incentives as giving confidence to small businesses to start planning, investing, and hiring for the future.
“Despite the positive tailwinds in the sector, we remain cautious about the extent and speed of recovery and will continue to be prudent in lending to our small business customers,” he said.
“Whilst COVID-19 has posed many challenges, it has also given rise to opportunities within the small business lending market. Small businesses remain amongst the most dissatisfied customer segment with traditional bank offerings, yet a majority still use their bank account for business banking. The data we’ve gathered over the last 8 years – particularly during COVID-19 – places Prospa in a unique position to expand the role we play in helping small businesses manage cash flow.”