PROVIDENT Financial, the doorstep lender, is considering a demerger that will separate its international division from its UK lending unit, The Times has learnt.

The company, which specialises in providing loans to those with patchy credit records, is expected to announce plans for the split today when it reveals its annual results.

The sub-prime lender is on track to announce profits of £180 million, despite two profit warnings last year.

A demerger would split the lender’s fast-growing international businesses, operating in the emerging markets of Poland and Mexico, from its traditional markets in the UK, where earnings growth has stalled.

Lenders such as Provident Financial, which target borrowers with poor credit histories, are under investigation by the Competition Commission, on concerns that vulnerable customers are being charged too much for their loans. Such lenders typically charge rates three or four times as high as those of high street banks.

The plan to split the company comes just two months after Provident Financial was forced to sell its Yes Car Credit division with the loss of 820 jobs. The sale led to an exceptional charge of £141 million.

Yes Car Credit was bought by Provident Financial more than three years ago from Candover, the venture capital firm, for £77 million. When it was closed down, Robin Ashton, chief executive of Provident, admitted that the purchase had been a mistake. “Not everything we do works,” he said.

A fifth of Provident Financial’s earnings were generated overseas when the lender announced its interim profits. The rest of its earnings come from the UK and its insurance division.

Analysts said that separating the two parts of the business would realise value more fully. In 2004 its international businesses provided all the earnings growth.

Mark Thomas, an analyst a Keefe, Bruyette & Woods, pointed out: “Provident has underperformed the FTSE (Eurofirst 300 index) by 35 per cent following the closure of Yes Car and the continued slow performance in the UK home collection division.”

The analyst suggests that the company should consider a merger with Kensington, the lender that offers mortgages to those with difficult credit histories.

Provident Financial and others in the doorstep lending market are also facing competition from high street banks such as Alliance & Leicester, which last month announced that it was planning to expand in the sub-prime market through a link up with Lehman Brothers, the investment bank.

The plans for a split are thought to be at an early stage. There are no decisions about the management. Venture capital companies could be interested in buying either of the two firms that could emerge from a split. Provident Financial would not comment yesterday.

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