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Why credit Days its way or careful Catties; FINANCIAL SERVICES.

Byline: By John Revill Business Staff

Specialist consumer lender Catties said careful management of credit quality had paid off with a 28 per cent hike in half-year profits to pounds 60.1 million.

Analysts had been looking for the figure to come in at pounds 58.2 million, according to a consensus forecast provided by the company, which has offices in Birmingham, Dudley, Wolverhampton, and Coventry.

The group, which serves individuals who may not have access to mainstream lending, said arrears levels on direct repayment loans remained stable at 7.3 per cent, below its long-established target range of between eight per cent and ten per cent.

While there has been a significant rise in loan defaults in the US sub prime mortgage market, Catties said it had maintained its focus on providing relatively small loan advances to carefully selected customers.

Chief executive Sean Mahon, said that even if interest rates rise, it wouldn't be a huge worry for Catties, because of the smaller amount the group tends to lend to customers - typically around pounds 4,000.

The company had also raised pounds 133 million from a share issue and pounds 400 million from a bond to give itheadroomofpounds 500 million on top of its current loan book of pounds 2.1 billion.

Catties increased its direct repayment customers by 49,000 in the first half of the year to 458,000.

New customer agreements rose by 51.6 per cent to 97,000, up from 64,000 in the first half of last year, and there was a further improvement in customers settling their agreements early, with 18,000 customers deciding for the option compared to 17,000 the previous year.

The Batley-based group, which trades as Welcome Financial Services, also said it had funding capacity to support further growth.

During a period of rising interest rates in the UK, the company's average cost of borrowings has remained stable at 6.8 per cent.

Around 90 per cent of the group's current borrowings are protected against future interest rate volatility, for an average period of over five years.

Mr Mahon, who is stepping down after seven years with the firm, said current trading remained in line with expectations.

He added: "We are very pleased with the results. The credit quality is stable.

"It is our accumulated knowledge of customer behaviour in the non-standard consumer finance market that enables us to identify profitable lending opportunities and successfully screen loan applications."

Catties said its consumer credit division increased profits by 26.8 per cent to pounds 56.2 million, achieved through strong growth in loan volumes and customer numbers.

The average advance to direct repayment customers was pounds 4,100, an increase of pounds 300 on a year earlier as Catties benefits from new systems enabling it to more closely match a customer's needs to appropriate loan amounts.

The group's debt recovery division, which trades as Lewis Group, delivered a strong performance with profits increasing 27 per cent to pounds 3.9 million. Revenues were up 31.1 per cent to pounds 14.1 million. Catties is still on the lookout for acquisitions after takeover talks with rival London Scottish Bank collapsed in February, the chief executive said.

"We've always said that if an appropriate acquisition comes we'll look at and that's still the case," Mr Mahon said.

"As banks tighten their criteria it does tend to shake out some quality people. Having said that, it's not something I wake up in the morning and say 'must do'."

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Title Annotation:Business
Publication:The Birmingham Post (England)
Date:Sep 14, 2007
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