Lower bad debt charges boosted full-year profits at British sub-prime lender Provident Financial
and the company said on Tuesday that it was confident of further growth in 2012, lifting its shares to their highest level since February 2001.

Provident Financial, which lends to people who cannot get credit from mainstream banks and whose roots date back to 1880, reported pretax profits for the year ending December 2011 of 162.1 million pounds ($256.8 million), up 12.2 percent from 2010.

Its earnings were lifted by a reduction in impairment charges for loans that have had to be written off, and the profits came in ahead of the average 160 million pound average consensus forecast given by Thomson Reuters Starmine.

The company proposed a final dividend of 42.30 pence, making a total dividend for the year of 69 pence, up 8.7 percent from last year. It also renewed 382.5 million pounds worth of funding facilities.

We've enjoyed very strong growth even though we've been pretty cautious about whom we issue credit to, Chief Executive Peter Crook told Reuters.

The group is in a position to make further good progress in 2012, he added.

Provident Financial's shares surged 7.4 percent to 1,152 pence in mid-morning trade, giving the company a market capitalisation of around 1.6 billion pounds.

The stock was the second-best performer on Britain's FTSE 250 mid-cap index <.FTMC>, behind housebuilder Persimmon
. Investec raised its price target on the stock to 1,130 pence from 1,080 pence.

Many smaller, alternative loans companies have benefited from the decision by mainstream banks to tighten their lending criteria in the wake of the 2008 financial crisis, even though consumers still need loans for their day-to-day needs in the face of higher inflation and rising unemployment.

Payday loan firms, such as Ferratum and Cash Converters , have also enjoyed strong growth, catering for cash-strapped consumers who need quick access to small cash loans that they might not get from leading banks.

Provident Financial's online and internet division Vanquis Bank, which gives out credit cards to those turned down by Britain's mainstream banks, has also had a rise in customer numbers and analysts said Provident Financial would continue to benefit from the current tough economic climate.

The continuing need for a revolving credit source among subprime customers and the lack of price competition will keep margins stable while the lending book grows, Investec said in a research note.

Provident Financial's loans typically range from 300 to 500 pounds over the course of a year. Like many subprime loan firms, the annual percentage rate (APR) on its loans can often be quite steep: the company's website gives the example of a 300 pound loan repayable over 52 weeks, with 52 weekly payments of 10.50 pounds, which could result in an APR rate of 272.2 percent.

Its Vanquis Bank arm had impairments of 77 million pounds in 2011 - up from 64 million in 2010 - but still a much lower charge than that of Britain's Big Four retail banks: Barclays , HSBC and part-nationalised lenders Royal Bank of Scotland and Lloyds .

(Reporting by Sudip Kar-Gupta; Editing by Hans-Juergen Peters and Jodie Ginsberg)