Q: There have been increasingly persistent reports of provisions for consumer loan default by the banking industry; PRL is in the business. I doubt PRL earnings for the quarter just past - statement due shortly – will be affected but it might affect their outlook for the coming quarter(s). I think GSY found a way to deal with the issue although it had a very significant run down in ‘21/’22 and wondered if it was related and what PRL had or could do to address the issue and what you could bring to the table on that score. I look forward to your reply. Thank you.
5i Research Answer:
PRL is not immune to the economy, but like GSY the company either prices loans to reflect risk or does not grant credit as freely if conditions change. This can slow growth, but can keep financial ratios and profit high. In the Q1, charge offs at PRL fell from 13% to 12%. This is well within its anticipated range. As interest rates fall, it may see lower charge offs, but if the economy worsens this could be an offset. But like GSY, the company is not likely to be seriously impaired by the economy provided it does not change its robust credit-granting policies. In other words, business should be fine if it prices risk properly. A weak economy could drive more business, as well, as banks get even more worried about credit.