Credit loss provisions send Prospa into the red

Credit loss provisions send Prospa into the red

Fintech lender Prospa (ASX: PGL) saw its revenues hit the wall in April and May, with pressures on its small business clients winding back nine months of 10 per cent annualised revenue growth.

The slowdown in loan originations led to expectations for a 4 per cent growth rate for the full FY20, while the company today announced a 'prudent' $20 million provision for credit losses due to the COVID-19 pandemic.

Despite seeing a "meaningful increase" in loans in June which has continued into July, the latest provisions mean Prospa expects an unaudited loss of $18-22 million for FY20.

This expected loss is also impacted by an additional $5.5 million in write-offs following a comprehensive review of loan book receivables.

As an approved lender for the SME Guarantee Scheme which has been extended to 30 June next year, Prospa highlights the resilience of small businesses through this difficult period. The fintech is offering customers COVID-19 relief packages - typically full deferrals of six weeks or partial deferrals of 50 per cent.

The Sydney-based company has observed a return to pre-coronavirus levels for the volume of customer support requests.

Chief executive officer and co-founder Greg Moshal (pictured) says small businesses have been doing it tougher than ever before, navigating the impact of bushfires and COVID-19 within the same year.

"Prospa adapted quickly to the challenge of supporting new and existing customers as they navigate this prolonged period of economic uncertainty," he says.

"We rapidly recalibrated our Credit Decision Engine to reflect the changing health of the macro economic environment as well as sensitivities in industry-specific small business trading models.

"Despite an ongoing challenging environment and continued uncertainty, we are now seeing small businesses across all sectors planning for their recovery, and we will continue to support these businesses with timely access to the right-sized capital they need to make this happen."

He emphasises Prospa's balance sheet remains strong with $55 million in unrestricted cash and $114 million in unused facility limits at the end of FY20.

The executive says the significant amounts of data and insights at Prospa's disposal help it make smart decisions in real-time about how to support more small businesses, even during COVID-19.

"The steps we've taken to ensure we are maintaining price and risk discipline during this time ensure we are in the strongest possible position to support the small business economy as it recovers," he says.

PGL shares dropped by more than 15 per cent in early trading but at 11:30am AEST they are down 7.65 per cent at $0.845 each.

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