goeasy Ltd T.GSY

Goeasy update

[Torontojay]

From the Goeasy website 

 

• Only 36% of the Company’s consumer loan portfolio carries a rate of interest greater than 35% per annum, of which the weighted average annual interest rate on those loans is 42.5% per annum. If this portion of the portfolio were to be immediately reduced to the newly proposed maximum allowable rate of 35% per annum, the weighted average interest rate on the total portfolio would reduce by approximately 270 basis points. However, as is customary with new legislation, the changes would occur on a prospective basis, thereby having a gradual effect on the Company’s weighted average interest rate over multiple years. 
   

 

• In the province of Quebec, the Company has been offering loans at a maximum rate of interest of 35% per annum, to comply with existing provincial licensing requirements, since 2017, and this portfolio produces a return on equity greater than 20% per annum. 

[Torontojay]

I have estimated the financial impact on this interest rate cap. Given the above, which states the average interest rate to decrease by 270 basis points from its loan portfolio, then operating income would be lower by ~ $70m had the cap been in place. However, this impact will gradually be felt in future accounting periods as older loans come off its books.  The operating income in 2022 was