Doorstep lender Provident Financial said profits rose 12% after fewer people defaulted on loan repayments and it benefited from strong demand for credit cards.
The group, which has some 2.5 million customers who generally have trouble borrowing from mainstream lenders, has been increasingly careful about who it lends to in 2011 as households are hit by the rising cost of living and high unemployment.
Pre-tax profits rose to £162.1 million after charges from the number of people struggling to keep up with repayments fell, with its credit card arm Vanquis Bank seeing delinquency rates fall to record lows.
Vanquis, which typically lends to people who have been turned down elsewhere, said it received 1.5 million applications for credit cards in the year, which drove a 27% rise in customer numbers to 691,000.
The group said its performance in 2012 has continued to be strong but it expects the number of people falling behind with repayments will rise in 2012 as unemployment approaches three million.
Its consumer credit division, which typically lends to customers who are paid by the hour, saw customer numbers fall 1.9% to 1.8 million as it tightened its lending criteria and focused on those with a track record of keeping up with repayments.
Profits for the division were flat at £127.5 million as impairment rates fell.
Vanquis Bank, which recently started accepting deposits, was the star performer, with profits up by two-thirds to £44.2 million.
Customer numbers were up 27% with delinquency rates at an all-time low in the second half of the year.
Shares in the Bradford-based group rose 7% after the profits beat City expectations.
Chief executive Peter Crook said: “The close attention to credit quality in both businesses has been the foundation of the group’s good performance in a year that has seen pressure on customers’ disposable incomes.
“Whilst this pressure continues in an employment market that is displaying some weakness, tight credit standards will remain in place.”