Prospa reports strong Q3 but Q4 hard hit by COVID

In an update to the ASX, SME lender Prospa revealed that it had a “solid performance” in the third quarter of the financial year 2020 (Q3FY20), with (unaudited) total loan originations of $122.8 million, up 21.5 per cent on the prior corresponding period ($101.1 million).

For this quarter, group revenue was also up 13 per cent on the prior corresponding period, to $37.4 million, with the business delivering average gross loans during the quarter of $465 million, up 41.7 per cent.

However, the SME lender outlined that the coronavirus pandemic has “materially impacted” its performance for the months of April and May – when Australia was in the midst of its lockdown and small businesses in Australia and New Zealand faced COVID-19-related pressures.

Citing that it had made “pre-emptive adjustments to its underwriting parameters and credit assessment model” to “reflect the current health and macroeconomic environment as well as sensitivities in industry-specific small-business trading models” – as well as focusing on supporting existing customers – Prospa noted that originations for Q4FY20 (up to 31 May 2020) were “slowed”.

The business lender revealed originations were just over $8.7 million, including SME Guarantee Scheme supported loans.

It added that approvals are expected to run at “a lower than usual rate for the remainder of CY20” to meet its static loss rate range of 4-6 per cent over the cycle.

However, the SME lender said it is now seeing improved demand in both Australia and New Zealand.

While the lender revealed that it had provided 5,501 customers with relief packages, including short-term payment deferrals and reduced repayments, between 1 March to 31 May 2020 (and peaking at nearly 700 packages provided a day in late March 2020), it outlined that the small-business sector was showing “early signs of resilience”, with 18.6 per cent of customers on full deferrals returning to full repayments since 15 May 2020.

As at 4 June 2020, 1,021 customers had reverted to full repayments, 2,731 customers had a partial repayment arrangement, and 1,749 had a full deferral still in place. 

The CEO of Prospa, Greg Moshal, commented: “I’m really proud of how quickly the team dedicated themselves to providing the highest level of support to our customers and partners during COVID-19 while also dealing with the impacts on their own lives. As our third quarter results demonstrate, Prospa was in a strong position going into COVID-19, which allowed us to react quickly and adapt to the new operating environment.

“We commend the government for recognising how important small businesses will be to our economic recovery and for their support programs like the SME Loan Guarantee Scheme.”

He continued: “As a company, we continue to closely monitor conditions and our data for evidence of the recovery, and we’re encouraged by the green shoots we’re seeing with our customers as they get back to business. Almost one in five of our customers who originally requested relief are already in a position to resume full repayments.”

Chief revenue officer Beau Bertoli noted that the lender’s Back to Business loan and line of credit, supported by the SME Loan Guarantee Scheme, was launched after a successful pilot with brokers.

“We’re thrilled all accredited partners can now refer eligible small businesses for our government-supported Back to Business Loan and Line of Credit. Since day one, we’ve taken partner and customer feedback on board when designing and delivering new products and initiatives,” he said.

“This pilot has given us invaluable insights and the opportunity to test, learn and evolve quickly, so we can offer better support for the small-business community. 

“We’re seeing encouraging signs of recovery in the sector and look forward to working with the broker community to help small businesses bounce back.”

The listed lender confirmed that it had also reduced its operating expenses by around 32 per cent since Q3FY20 by reducing the size of its workforce, as well as “significantly reduced its marketing expenditure, renegotiated contracts with suppliers, and reduced employment-related expenses”. 

“Prospa will continue to evaluate the appropriate operating expense levels as conditions evolve,” it said.

Mr Moshal concluded: “We have used this time to focus on preserving our capital, so we are now well placed to support small businesses as they start to return to work. 

“Our enhanced credit model will allow us to identify and support thousands more Australian businesses who are looking not just to survive, but to prosper, as they emerge from government restrictions.”

[Related: Prospa receives funding boost]