The FY21 Annual report states “Record low arrears and losses meant that loan provisioning has increased in anticipation of a reversal as economic conditions normalise post-pandemic.”
I read it to mean that in respect to loans, both arrears and losses were low. However, Management thinks that this will change for the worse, so Management has increased loan provisioning. What follows, especially the last sentence, supports that interpretation: “As COVID-19 stimulus was withdrawn the lending business experienced a rapid increase in demand, particularly from returning customers. This was supplemented with rising new customer volume when approval criteria returned to pre-COVID-19 settings at the start of the fourth quarter. Gross lending exceeded pre-COVID-19 levels over the second half. Arrears and losses remain at historic lows, but this is not expected to continue and the Company has provisioned accordingly.”
This negativity surprised me, so I decided to see what Management did in FY20 and FY21, and it looks so weird that I am sure I have missed something.
The panic-induced extra provisioning for loans in FY20 was not reversed when collections transpired to be better than expected. I do not know the exact increase for FY20, but in loose terms the doubtful-debt provision for the balances was stated to have increased from 19% to 24%.
In FY21Management feared that when Covid financial stimulus ended, debt payments were likely to suffer. The provisioning of the loan asset increased from 24% to 26.5% – to wit, in $000:
The value of the loans made in FY21 is not easily known. Making loans (credit cash, and debit debtor) are not a transaction that make it to the trading accounts. There is a line in the cash flow summary – Net funding of consumer loans (25,167), which is probably correct. What I do not understand is that the expense item is larger – Consumer loans loss provision expense (32,891). Something seems wrong, but I do not know what it is.
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