LLOYDS TSB said yesterday that bankruptcies accounted for 50 per cent of bad debt charges in its retail banking division.
Britain’s fifth-biggest bank said that bankruptcy-related bad debts had soared over the past year, as the number of bankruptcies across the UK doubled after the recent relaxation of the law.
The news came as Lloyds TSB reported further deterioration in the consumer lending environment in the first half of 2006, as more customers struggled to repay their loans.
However, after a tightening of lending criteria at the end of 2004 and last year, the bank said that it expected greater stability in the level of bad debt charges during the second half of 2006, compared with the first half of the year.
The lender saw bad debt charges in the retail bank jump 34 per cent last year. In an interview with The Times in April, Eric Daniels, chief executive of Lloyds, bemoaned changes to the bankruptcy laws. “People are getting more debt forgiveness and it removes some of the stigma of defaulting. As a member of society, I am concerned what happens to values,” he said.
Lloyds TSB also announced yesterday that it had agreed a new deal to wipe out its £1.5 billion pension deficit over ten years. The bank has made a formal commitment to inject just under £200 million a year into the pension scheme. It also expects to carry on making additional voluntary contributions of about £70 million a year. As a result, its total contributions to the scheme will rise by about £50 million a year.
Under the agreement, Lloyds has committed to wiping out the actuarial deficit over ten years, but if it continues to make voluntary contributions at a similar rate it could eliminate it in six years.
Overall, the bank said that it would deliver “satisfactory earnings growth” for the half year and revenue growth should exceed cost growth in all units across the group in that period. Sales volumes through the branch network, telephone and internet banking are all ahead of the same period last year.
Margins are expected to be slightly down on last year, mainly because of a change in business mix, with growth in lower-margin loans, such as mortgages, and a fall in higher-margin unsecured lending.
Richard Hunter, of Hargreaves Lansdown Stockbrokers, said that the bank’s comments on bad debt had tarnished an otherwise “robust” trading update. “Lloyds TSB is one of the more exposed banks to the UK consumer and so the comments on retail bad debts are slightly troubling,” he said.
