Fierce competition from credit card firms today dented profits at the UK home loans arm of doorstep lender Provident Financial.

The Bradford-based group said rivals had eaten into its core business of providing loans to low income families and it now had 5% fewer customers than at the start of 2004 - currently just over 1.5 million.

Profits from its UK home credit arm fell nearly 2% to £60.1 million during the six months to June 30, while turnover was 1.5% lower at £236 million.

Chairman John van Kuffeler said: "We are operating in a market for small sum credit that is becoming increasingly competitive. In particular, credit card firms are actively targeting lower income customers."

Growth internationally and at auto loans division Yes Car Credit still enabled the group to lift profits overall - up 6.3% to £87.2 million.

But investors were braced for further tough conditions over the second half of the year, while Yes had also seen a sharp slowdown in sales.

Sales volumes at Yes grew by 38% in the first quarter but then went into reverse to fall 3% over the following three months, with a poor performance in June.

Provident said the slowdown was being felt across the used car credit market and consumer confidence may have been undermined by higher interest rates and oil prices.

The tougher conditions have hit Provident as the Office of Fair Trading investigates the £2 billion doorstep lending industry following a complaint from the National Consumer Council.

The consumer watchdog found that people who borrowed money from doorstep lenders were unlikely to shop around for a better deal because of the relationship that developed between them and collectors.

Provident has sent a written response to the OFT defending its reputation as a responsible lender selling transparent products in an increasingly competitive market.

Elsewhere in the business, profits generated by its 28-strong chain of Yes Car Credit branches improved more than 9% to £5 million during the period, while turnover was ahead by 20% at £148 million.

Lower than expected claims enabled the group to lift profits at its motor insurance division by 13% to £16.6 million - in spite of a 24% fall in policyholders.

But growth was fastest at its international division where profits reached £15.4 million from £8.7 million a year ago, helped by Hungary moving into the black ahead of plan.

Wednesday July 28, 2004