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Provident Financial says Hungarian unit to cut profit

Provident Financial Plc., a UK lender to low-income households, said profit through 2007 will be hurt after the company suspended lending at its Hungarian unit because of regulation changes. The shares fell 4%. Adjustments to back-office processes, technology platforms and the employment status of its agents means „lending has been suspended temporarily with immediate effect” in the country, Provident said in a Regulatory News Service statement today. That will cut profit by as much as £2 million ($3.7 million) this year and up to £6 million in 2007. „At this stage, our best estimate is that it may take up to a month to implement the necessary changes to administrative procedures and IT systems,” the Bradford, England-based company said in the statement. „No existing contracts are affected and customer repayments will be collected as normal.” Provident said in September that H1 net income fell 21% to £46.5 million after it shut its Yes Car vehicle finance unit and bad loans rose. Overall profit in Central Europe rose, helped by „double-digit growth” in the Czech Republic, Hungary and Slovakia, the company said. That countered a cut in growth at its Polish unit, which suffered from an increase in bad loans and caps on interest rates imposed by the regulator there in February. Shares of Provident fell 26 pence to 626.5 pence in London as of 11:35 a.m., their biggest drop in four months. That cut this year's gains to 14% and gives the company a market value of £1.59 billion.

„This is yet another example of the regulatory threat that exists for this company's business model,” said Katrina Preston, a London-based analyst at Bridgewell Ltd., who has an „underweight” rating on the stock. „First there was the UK then Poland. This is the next one. What's next?” In the UK, door-to-door lenders including Provident and Cattles Plc. are under investigation by the Competition Commission, which wants them to share date and make loans more transparent to foster competition in the market. The regulator, which is set to publish its full report in the next few weeks, hasn't ruled out price restrictions. Provident plans to split off its international division, where growth is higher than in its home market, for a separate stock listing in 2007. „The whole premise of the demerger is to reflect the higher growth in the overseas business,” said Preston, who reduced her earnings-per-share estimates by 1.2% for this year and 3% for 2007 as a result of today's announcement. „News like this puts a question mark over the ability to achieve that growth.” (Bloomberg)