BRITAIN’S banks are set to announce another year of record profits, despite fears over a weakening housing market and concern about rising consumer bad debts.
Northern Rock, Britain’s seventh-biggest bank, has already produced results that were ahead of analysts’ expectations as the company managed to cut costs and win a bigger share of the mortgage market.
Among those expected to announce big rises in profits are Barclays and HSBC. Profits growth at Barclays is being driven by the rapid expansion of the group’s investment bank. Analysts will be looking at whether Barclaycard, Britain’s biggest credit card business, is experiencing any unforeseen rises in defaults and arrears.
The corporate banking divisions of HBOS, Royal Bank of Scotland and Lloyds TSB are also expected to show strong profit growth on the back of soaring demand for finance from private equity firms involved in leveraged buyouts.
Keefe, Bruyette & Woods, the analysts, said that Bradford & Bingley, the former building society, which is the next of the banks to announce profits, is likely to show the same picture as Northern Rock, of loan growth of 10 to 11 per cent, stable-to- improving product margins, cost increases below income rises and only a marginal deterioration in credit quality. The firm said: “Overall, we expect mid-high single-digit earnings growth.”
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Analysts now say that, far from suffering from a housing crash, banks that rely on the mortgage market, including HBOS, Alliance & Leicester and B&B, should see strong growth in this business in 2006. The only likely trouble on the banks’ horizon is a probable rise in bad debts in their unsecured consumer credit businesses.