Wonga on track to return to profit despite losses of £64.9m
The lender was hit by the costs of a business overhaul, investment in new products and the impact of compensation payouts and loan write-offs.
Britain’s biggest payday lender Wonga has revealed it remained deep in the red last year with losses of £64.9 million, but confirmed plans to return to profit in 2017.
The lender posted the losses after it was hit by the costs of a business overhaul, investment in new products, the ongoing financial impact of compensation payouts, and after writing off £220 million of debts for 330,000 struggling UK customers in 2014.
The write-offs came after the Financial Conduct Authority (FCA) toughened rules across the payday lending sector.
But Wonga’s most recent set of annual results showed losses narrowed from £80.2 million in 2015 and the group said efforts to cut costs, combined with the success of recent new products, would lead to a “significantly improved performance for the current financial year”.
As part of cost savings, it has moved to a new London headquarters and ended its sponsorship contract with Newcastle United football club.
The group added that revenues rose by 18% last year to £76.7 million, thanks to the launch of its three-month Flexi Loan in the UK and growth overseas.
It has also recently launched a six-month Flexi Loan in the UK and plans further new products.
Tara Kneafsey, group chief executive of Wonga, said: “2016 was a milestone year in the UK as we received full regulatory authorisation and launched our first new product in four years.
“That progress has continued into 2017 with the launch of further new products and the strengthening of our senior management team.”
The group said its borrower default rate stood at 3.4%, which it said was “in line with our commitment to responsible lending”.
Wonga operates across the UK, Poland, South Africa and Spain.
It has seen stricter rules brought in for its UK and South Africa operations, with stringent new affordability criteria and the introduction of a regulatory price cap.
In the UK, Wonga was ordered to pay £2.6 million to 45,000 customers three years ago after it sent threatening letters from non-existent law firms – in the same year it had to pay compensation to almost 200,000 borrowers who overpaid due to “system errors”.
The group revealed in its latest set of results that provisions for compensation to customers in the UK and South Africa stood at £26.9 million at the end of last year.
Wonga faced a barrage of criticism three years ago over the high interest it charges on its loans and it was accused of targeting the vulnerable.
The FCA has since ruled that customers must go through more strict affordability checks and has introduced a 0.8% cap on the cost of payday loans on the amount borrowed per day.