HBOS joins rivals in warning over increase in bad debts

HBOS has become the third UK bank in less than a week to warn about an increase in bad debts, adding to fears about the extent of the consumer slowdown.

HBOS has become the third UK bank in less than a week to warn about an increase in bad debts, adding to fears about the extent of the consumer slowdown.

Britain's fourth-largest bank said yesterday that bad consumer debts had risen in the first four months of this year, but stressed the increase was in line with expectations.

Barclays issued a stronger warning last week when it admitted bad debts had risen faster than it anticipated. That was followed by comments from HSBC's chairman Sir John Bond on Friday, who talked of a "marked but manageable" increase in bad debts.

The deterioration in credit quality has been largely confined to unsecured lending, especially on credit cards, with the banks' mortgage books less affected. That puts HBOS in a better position than some of its rivals, as 93 per cent of its retail loan book is mortgage lending and only 7 per cent unsecured. When it reported its annual results in March, HBOS said consumer bad debts had risen in the second half of last year, prompting it to adopt a more cautious approach to lending.

In yesterday's trading update, HBOS, which was formed in 2001 from the merger between the Halifax and Bank of Scotland, said mortgage lending was "robust" and that it was maintaining its market share. With corporate lending also performing strongly, group revenues are ahead of last year, it said. "With tight cost control, we expect to deliver planned profit growth".

The group has bought back £230m of shares for cancellation and is on course to reach its target of up to £750m this year.