Continued strong development across countries and online growth
“Home Credit’s performance in the first three months was consistent with our expectations, as we continued to execute our strategy across all countries and especially online. During the period, we further strengthened our portfolio and extended our leadership positions.
In the first quarter we grew new loan volumes by 28.4% year on year excluding China and 2.6% year on year overall.
In Russia, Vietnam and Kazakhstan, the momentum we saw in 2017 has continued and these markets have all contributed very positively. In our growth markets, specifically Indonesia, the Philippines and India, we further strengthened our market share through both our enhanced online capabilities and our proven partnership model with manufacturers and retailers.
In China, recent regulatory actions were focused on unregulated lenders, who were driving an overheated market. As we anticipated, the resultant significant shrinkage in supply of new credit had a short-term impact on licensed companies, including Home Credit. The impact on our portfolio, however, was however lessened as we had already reduced our approval rates in the 2nd half of 2017 followed by a further decrease of underwritten volumes in the 1st quarter of 2018. Benefitting from Home Credit’s global experience, we entered this period of turbulence well-prepared. Despite losses in the first quarter, we remain confident in the underlying strength and scale of our business in China and I am confident that we will see a quick recovery in our performance in the upcoming quarters. In the long-run we will benefit strongly from the regulatory measures which have improved the structure of this important market.
Overall our balanced portfolio, innovative approach and strong execution capabilities mean we remain well positioned for the year ahead.”
Chairman of the Board of Directors and Group Chief Executive Officer
Home Credit’s performance for the first quarter was in line with management expectations, delivering new loan volume growth of 2.6% to EUR 4.4 billion and a loss of EUR 31 million, compared to a profit of EUR 80 million in the same period last year. The quality of the Group’s loan portfolio deteriorated slightly with an NPL ratio of 8.2%, mainly due to the short-term impact of the regulatory actions in China. Our approach to customer approvals, however, remains highly disciplined across all our markets. We have continued to enhance our mobile and online offerings to complement our substantial POS network, providing our customers with the choice and convenience they require. As well as empowering our clients, our advanced technology and data capture also creates further cross-sell opportunities and increases the speed and accuracy of our underwriting and risk management processes.
Points of Sale Network
The Group has continued to expand its sales network to 403,577 points of sale globally, adding 94,874 distribution points, year-on-year. China continued to optimize its sales network and, by leveraging a positive experience from within the Group, it has selectively introduced a model which is fully operated by partner retailers’ employees. In Russia, although the Group discontinued its presence in less profitable retail partners’ networks, the underwritten volumes did not decrease and profitability increased.
On line Distribution
At the same time, the Group has significantly expanded its online capabilities to create a true ’omni-channel’ offering. In doing so, Home Credit has increased both its network of touchpoints and regular engagement with customers, allowing the Group to provide more tailored offerings and generating greater cross-selling opportunities. The number of active clients increased 23.4% year-on-year to 28.9 million, with 32% of our clients being active users of our mobile applications.
In Russia, Home Credit used its data processing expertise to launch a new and simple credit application form with just five fields for customers to complete, and consequently online sales grew by 13.4% quarter-on-quarter (1Q 2018 v. 4Q 2017). In China, the enhancement of its mobile application resulted in a 14% increase in loans originated from customers’ smartphones quarter-on-quarter. In the Philippines, online sales grew by 19% and in Indonesia by over 80%. In Indonesia, the Group introduced a direct link to a digital wallet from one of the major local fin-techs into the Group’s own mobile application. The link enables Home Credit to reach new customers who are shopping online. In the Czech Republic, Home Credit’s subsidiary, Air Bank, successfully introduced its NFC-enabled mobile payments functionality which was used by 30,000 customers in the first 30 days. All these initiatives have helped to improve Home Credit’s brand positioning and awareness among customers in their local markets, and offer an opportunity to share innovative services across the Group.
Geographical diversification is a key pillar of Home Credit’s strategy. The Group delivered another strong performance in Russia in the first quarter thanks to the company’s disciplined approach in securing new loans from higher-quality customers and the introduction of new products. Kazakhstan continued to perform well, along with Vietnam, where the Group celebrated its 10th anniversary by reaching a milestone of more than 10 million loan approvals in total. The growth markets of India, the Philippines and Indonesia continued to perform strongly. Indonesia and the Philippines were profitable in the quarter.
Home Credit’s underlying performance in China continues to be robust, in line with expectations. As previously disclosed, local regulations which were introduced last year have led to some short-term market challenges. These new measures seek to regulate the rapidly expanding universe of unregulated lenders which had led to a significant increase in consumer indebtedness in an overheating market. Whilst the regulatory intervention has curbed the growth of unregulated microfinance companies and P2P platforms and increases transparency for consumers, there has also been a short-term impact on the profitability of licensed lenders. Given deteriorating conditions Home Credit took a defensive position, reducing volumes in China by 5.8% in local currency compared to Q1 2017, or by 11.6% in EUR terms. The China business lost EUR 88 million in the period while, according to the Chinese local reporting standards, the business remained profitable. Despite this, Home Credit strongly believes these reforms will be beneficial for the industry, Home Credit China and Chinese consumers over time.
In the first quarter, Home Credit China successfully issued its 7th tranche of asset-based securities amounting to RMB 3.6 billion. Further, shortly after the end of Q1, the company issued its first financial bond of RMB 1.5 billion in the Chinese Interbank Bond Market, which was 1.6x oversubscribed. This demonstrates the regulator’s and the market’s confidence in the underlying strength of Home Credit’s business. These transactions, approved by the China Banking and Insurance Regulatory Commission (“CBIRC”) and the People’s Bank of China, were a further validation of our established and successful business model in China.
|Business Results||Q1 2018||Q1 2017|
|Loans granted YTD (EUR million)||4,398||4,287|
|Number of active clients (million)||28.9||23.4|
|Number of distribution points||403,577||308,703|
|- Number of POSs and loan offices||403,047||306,656|
|- Number of bank branches||306||323|
|- Number of post offices||224||1,724|
|Number of employees (thousands)||
|Profit and Loss (EUR millions)||Q1 2018||Q1 2017|
|Net interest income||760||517|
|Credit risk costs1||(572)||(201)|
|Net profit after tax||(31)||80|
1) Credit risk costs represent impairment losses on the loan portfolio
2) Operating expenses comprise general administrative and other operating expenses
|Financial Position (EUR millions)||Q1 2018||YE 2017|
|Net loan portfolio||15,228||15,452|
|Customer deposits and current accounts||6,540||6,356|
Source: Home Credit B.V., consolidated.
|Profit and Loss Ratios||Q1 2018||Q1 2017|
|Net interest margin1||15.6%||14.2%|
|Net interest income to operating income||79.7%||76.3%|
|Cost to average net loans2||11.4%||13.6%|
|Cost to income ratio3||45.7%||53.0%|
|Cost of risk ratio4||14.9%||7.6%|
|Financial Position Ratios||Q1 2018||YE 2017|
|Net loans to total assets||69.1%||71.8%|
|NPL coverage ratio7||144.2%||121.7%|
|Deposits to total liabilities||32.3%||32.6%|
|Equity to assets||8.0%||9.4%|
|Equity and deposits to net loans ratio||54.6%||54.3%|
Source: Home Credit B.V., consolidated.
Ratios are annualized where applicable.
1) Net interest margin is calculated as net interest income divided by the average balance of net interest earning assets.
2) Cost to average net loans is calculated as general administrative and other operating expenses divided by average net loans.
3) Cost to income ratio is calculated as general administrative and other operating expenses divided by operating income.
4) Cost of risk represents impairment losses divided by average balance of net loans to customers.
5) RoAA is calculated as net profit divided by average balance of total assets.
6) NPL ratio is calculated as gross non-performing loans divided by total gross loans. The Group defines non-performing loans as collectively impaired loans that are overdue by more than 90 days as well as loans considered individually impaired.
7) NPL coverage ratio is calculated as loan loss provisions divided by gross non-performing loans.