Shares in Provident Financial rose 4.8 percent to 859 pence by 0855 GMT, valuing the group at 1.12 billion pounds. The shares have dipped 4 percent this year -- well ahead of the FTSE General Financial Index which has lost more than a fifth of its value.

The group said inflationary pressures and the outlook for unemployment had made it more cautious about extending new credit to customers over the last year.

Despite this, customer numbers at its direct lending arm Home Credit grew 7 percent to 1.66 million and rose 29.4 percent to 374,000 in its Vanquis Bank credit card business.

IMPAIRMENT FALLS

Although Provident will remain cautious about granting new credit it expects to perform well in the second half.

A poll of analysts by Reuters Estimates forecasts Provident will deliver annual pretax profit of 126 million pounds in 2008.

"We’re happy with those numbers (126 million) in the market for the full-year," said Crook. "My view is the slowdown will last for at least another 18 months."

Provident, which maintained an interim dividend of 25.4 pence per share, said it is well-funded until 2010 and has 380 million pounds available in its banking facilities.

"The company has operated through downturns before, with almost the same business model and so credit quality (going forward) should be fine," said Citigroup analyst Haley Tam in a pre-results note.

Impairment -- or bad debt -- as a percentage of revenue in the period fell to 30.4 percent from 31 percent for its Home Credit division as the company tightened its lending criteria.

The ratio of impairment to revenue at Vanquis fell to 36.8 percent from 50.1 percent, said Provident.

Vanquis said it is turning away more than seven out of 10 customers who apply for a credit card, due to caution about the economic environment in 2008 and beyond rather than because it is seeing more people with worse credit situations applying.

Revenue at Home Credit rose 11 percent to 324 million pounds and increased to 42.9 million pounds at Vanquis, up from 27.8 million in the same period last year.

"Vanquis is performing consistently now and we hope to have half a million customers by 2010," added Crook.

(Editing by Quentin Webb)