Fellow Finance - Loan volumes at risk

The Ministry of Justice of Finland has informed that it will start preparing a bill proposal to limit maximum consumer loan interest to 10%. According to Fellow Finance the proposal in its current form would – ceteris paribus – reduce current intermediated loan volumes by approx. 50% compared to March 2020 volumes. We keep our estimates largely intact for now but derive valuation scenarios based on which we adjust our TP to EUR 2.5 (3.0), HOLD-rating intact.

Proposal to cap consumer loan interest at 10% (20%)
The Ministry of Justice of Finland has informed that it will in the upcoming weeks start preparing a bill proposal to limit maximum consumer loan interest to 10% from the current 20% due to the Coronavirus pandemic. The changes are planned to be in effect until the end of 2020. According to Fellow Finance the proposal in its current form would cut current intermediated loan volumes by 50% compared with March 2020 volumes. Furthermore, if investors in a 12% interest risk class would lower interest requirements to the proposed 10% cap, around 80% of current loan volumes could be intermediated.


Proposal would affect near-term profitability
We keep our estimates largely intact for now as the outcome and content of the bill proposal is not yet certain. Given the economic impact of the Coronavirus pandemic and an ease of making drastic decisions we see a high likelihood of the proposed bill passing. We derive scenarios for the possible effects of the proposal and expect a 10% cap to put EBIT in the coming years at near zero or negative.


HOLD with a target price of EUR 2.5 (3.0)
We derive three scenarios based on the planned bill proposal, described more in detail on page two. Based on a weighted approach, assuming an 80% likelihood of the bill passing, we derive a target price of EUR 2.5 (3.0) and keep our HOLD-rating intact.

Open Report