More and more borrowers are having a tough time paying back their loans, latest management statements from banks suggest.
Two of Britain's biggest banks gave an update on their financial results today, with both firms suggesting that bad debts are on the rise.
Shares in the Lloyds Banking Group - which includes HBOS and Lloyds TSB - fell sharply on the FTSE 100 this morning, after the bank announced that there would be a 50 percent increase in loan write-offs due to customers defaulting on their debts in 2009. This is bad news for the government, who part-nationalised the bank in a bailout last year.
It is thought likely that the deterioration in the loan book will be mainly caused by HBOS, which has faced criticism recently for lending too indiscriminately prior to the onset of the credit crunch.
Meanwhile, Barclays also said today that impairment charges on debts were up by 79 percent over the first quarter of the year. However, strong performance elsewhere in the business - particularly in units bought from collapsed investment bank Lehman Brothers last year - meant that profits increased 15 percent year on year to hit £1.2 billion.
Eric Daniels, chief executive at Lloyds, commented: "In extremely challenging market and economic conditions, the Group has made good progress in its first few months."
John Varley at Barclays said: "We generated strong income growth across most business lines driven by the investments we have made in expanding our international network and in buying Lehman. This, together with good cost control, has enabled us to shield the anticipated increase in impairment and absorb further credit market writedowns on legacy assets."
