November 15, 2023

Tarmo Sild
CEO of Iute Group

Iute Group had another successful quarter thanks to its customers and the Iute teams in the Balkans and Estonia. As management, we are very proud of the strong results achieved, given the current developments and trends on the capital markets, monetary policies, and overall macroeconomic and geopolitical situation. However, it is not only the external environment that determines success or struggle. In other words, we have to take a number of factors into account when making decisions in order to continue to grow profitably.

On the one hand, we saw a decline in the absolute number of performing customers with whom we maintain active and profitable business relationships for the first time. Historically, the performing customer pool (PCP) has always grown, but not this year, in which the PCP shrank by 11 thousand people or 3,7%. Moreover, there has been a decline in customers’ repayment discipline. Accordingly, the CPI30 fell from 90,5% to 87,3%. This means that during the period 873 thousand EUR out of every repayable million EUR were repaid on time or with a maximum delay of 30 days, whereas a year ago the number was 905 thousand EUR out of every million. To cut a long story short: At the end of the nine-month period, we have fewer customers who are even worse at repaying their loans.

In this context, the number of loan applications also decreased slightly by 2% in Q3. More importantly, however, we tightened the loan approval criteria. As a result, the approval rate in Q3 fell to about 60%, compared to over 66% in the past. Ultimately, a decline in the performing customer pool in conjunction with an increase in late repayments was intensified by slightly lower loan demand and a significantly lower approval rate.

On the positive note, the performing loans portfolio and revenue continued to grow, as we had planned – with fewer but better customers. It is clearly paying off that we take larger exposure per performing customer: Revenues continued to increase. Understanding who these fewer but better customers are requires data science, effort, and investments. So, the biggest challenge is to improve quality. And although we are profitable, we have not yet reached our full potential to reduce the cost-to-income ratio to below 40%, which is becoming increasingly important given the rising cost of capital and overall higher risk in the consumer lending business. The same applies to a CPI30 of over 90 points, which is our Group benchmark for “optimal” in consumer lending. Part of risk reduction is also the Iute Group’s increased involvement in legislative initiatives. Which means that not only we are increasingly adapting to ever-changing requirements, but in turn, we are also being consulted more and more frequently by the regulatory authorities in various countries on our understanding of the role of microfinance, digitalization of finance, responsible lending, and compliance. Tangible examples include the ongoing Wallet development and the Energbank turnaround, which place additional strain on the Group’s compliance and risk procedures in view of the primacy of profitability.