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UK banks report bumper profits despite worsening consumer debt

UK banks are reporting record profits for the first half of the financial year but many have warned that consumer bad debt is worsening and have increased their retail lending impairment.

HSBC has already reported that its impairment charge for unsecured personal lending in the UK was considerably higher than the first half of 2005. However, group profit for the biggest UK bank was up 18% to $12.5 billion.

HBOS, another of the big four UK banks said that profit before tax for the first six months was up 17% to GBP2.65 billion. Impairment losses also rose 15% however, to GBP864 million from GBP753 million in the first half of last year. The bank said that continued affordability pressures, growth levels in personal insolvencies and the market tightening of credit availability were to blame for the rise in bad debts.

Alliance & Leicester, the UK’s seventh biggest bank, was badly affected by a rise in bad debts, dampening speculation that the group might receive a takeover offer. The decline in operating profit from GBP268 million from GBP272 million last year reflected lower income from unsecured loans and higher loses from borrowers unable to repay what they owe.

Prudential-owned internet bank Egg also made a surprise GBP39 million loss in the first half, with the company admitting that bad debts hurt the business. Northern Rock has also been hit by an increase in mortgage arrears, although it still made a profit. Barclays, Lloyds TSB and RBS Group are yet to report but are also forecast bumper profits.