International Personal Finance Polish profits in danger after loan cap vote

International Personal Finance has been hit by a surprise vote in the Polish parliament to cap all non-interest costs on consumer loans, which analysts said could have a "significant detrimental impact" on its profitability in the country.

The FTSE 250 home-credit group said it was examining the draft law to see whether its products will be affected by the proposed cap and, in case they are, has already begun developing an alternative product structure to limit any adverse effects.

IPF will be affected if its home service charge is captured within the proposed price capping structure. Analyst Gary Greenwood at broker Shore Capital calculated that the implementation of a price cap on all non-interest costs could see the company's product total income, including interest and fees, fall by 26% which, all else being equal, "would be enough to wipe out product profitability".

The draft law will now go to the upper chamber of the Polish Parliament where it could be accepted, amended or recommended for withdrawal before then being put before the president and then the supreme court.

According to the current draft of the legislation, it would become effective and lenders would be required to comply from six months after signature by the president.

"This is a significant and unfortunate twist in the investment story for IPF, in our view," said Greenwood.

He noted that the new draft law contrasts with the existing proposals, adopted by the Polish Government in May 2015, which just included price capping of mandatory non-interest charges.

"While the original proposal meant that IPF would have been largely unaffected by the price capping proposals, in our view, the revised proposal could have a significant detrimental impact on profitability in Poland."

ShoreCap currently forecasts Poland to generate £73.5m of adjusted profit before tax in 2015, which is equivalent to 60% of its group adjusted PBT estimate of £122.4m.

"As such, IPF may need to consider further product restructuring to mitigate the impact of the proposed change, should it be accepted and implemented by the Upper Chamber."

Shares in IPF were down 13.2% to 409.3