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The non-bank’s SME loan originations dropped by more than a third in 4Q23, after it tightened credit risk settings amid a changing economy.
SME lender Prospa Group Limited (Prospa) has seen a drop in new loans and is expecting losses to increase in a changing economic environment, according to a business trading update released on Friday (28 July).
The ASX-listed lender has revealed that loan originations fell in the quarter ended 30 June 2023 (4Q23) when compared to 4Q22.
The lender originated $155 million in SME loans in the three-month period, down 37 per cent when compared to 4Q22’s result of $245.6 million.
Prospa said the decline was because the company “proactively tightened credit risk settings” that were brought in by the lender in response to “a deteriorating macro-economic environment” and “rapid changes within the broader economy throughout the second half”.
The difficult macro-economic conditions have also led the lender to increase its loss provisions to 12.7 per cent of closing gross loans (up from 9.4 per cent in the first half of FY23), of which nearly 60 per cent relates to “incremental macro-economic overlay”.
However, Prospa co-founder and chief executive Greg Moshal said the originations results were still “pleasing” despite the dip, adding the firm continued to “provide balanced lending support to small businesses in the current economic environment”.
“Our portfolio yield remains steady; however, losses were higher as certain small businesses experienced heightened cost pressures, changes in consumer demands and weakening revenue,” Mr Moshal said.
Its net interest margin in the quarter also dropped to 27.4 per cent, compared to 30.3 per cent in 4Q22, which it said was “due to rising interest rates and tighter risk appetite resulting in lower yielding originations”.
Given the challenging conditions, the lender expects to make a loss of $29 million in earnings before interest, taxes, depreciation, and amortisation (EBITDA) and impairment and restructuring expenses.
Prospa’s chief financial officer Ross Aucutt said the company had ended the year positively despite “challenging economic conditions”.
“We are focused on our risk settings with regular reviews over the past nine months, and we will continue to monitor and adjust as appropriate,” Mr Aucutt said.
Overall, the update showed that the lender’s gross loans were up 23 per cent, ending the financial year at $862 million (up 23 per cent on the $701.3 million the prior year).
Looking forward, the non-bank anticipated a period of “continued economic uncertainty impacting the small-business sectors in Australia and New Zealand” and said it “continues to actively leverage its dynamic credit decisioning capability to make quick and decisive setting changes to optimise commercial and customer outcomes”.
To counter the abrasive economic conditions the Prospa Group earlier this month established a corporate debt facility of $12 million.
The group said the corporate debt facility would bolster its position with stable funding capacity across its various funding facilities as it looks to support small businesses across Australia and New Zealand.
The firm confirmed it would release its full-year results on Wednesday, 30 August 2023.
[Related: Prospa establishes $12m debt facility]
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