UK Banks Expected to Report Increased Profits

THURSDAY, MARCH 08, 2007

Despite continuance of fears about the exposure of banks to bad debts, the top UK banks expect to see combined profits of £38 billion for the past year. Barclays, the first of the UK's five largest banks, expects its profits to rise by a third to £7 billion. HSBC put aside an extra £878 million to cover bad debts in the United States. Because of the tightened lending policies that banks have instituted, analysts believe that an increase of £33 billion over last year is probable.

There are still concerns about how current economic conditions will affect the top five UK banks. Barclays reported in November that it was still incurring higher costs because of a sharp increase in personal bankruptcies. A year ago, Barclaycard had to write off 44% more in bad debts than it had the previous year. That resulted in the card issuer tightening credit requirements, and so far, it has been turning down 50% of all new credit card applications. In spite of concessions that the bank had to make, it is still expected to show a high profit for the past year because of its investment banking and fund management businesses.

Though banks are experiencing an increase in profits in spite of the economic conditions that exist, it is not without some hard work. Stringent cost control measures are necessary in order for the banks to continue to realize an increase in profits in spite of an increase in bad debts. Some of those measures have included more stringent lending policies, and it is likely to become even more difficult until an improvement in the economy is realized. Banks like Barclay that have other entities on which to draw such as investment banking divisions will not feel the crunch as much as those who rely solely on deposits and personal loans.