Barclaycard, Britain’s most popular credit card, signalled yesterday that it expected its army of customers to default on an unprecedented £1.5 billion of debt this year.
Its parent company, Barclays, blamed rising numbers of personal insolvencies, particularly individual voluntary arrangements (IVAs), for the blow-out in bad debts.
In the second half of this year, the bank has been writing off debts owed by credit card and personal loan customers at the rate of £31 million a week.
The problem has been worsening, the write-off rate rising from £19.5 million a week to £22.7 million and then £26.8 million in the previous three six-month periods.
Barclaycard is the single biggest branded credit card operation in Britain, with 11.2 million cardholders and about £25 billion lent out at any one time.
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The expected write-off — in effect an acknowledgement that the bank is not going to get its money back — equates to £140 for every cardholder in Britain.
The rising level of cardholder defaults was revealed in a trading statment from the bank in which it warned that the 37 per cent rise in Barclaycard bad debts in the first half of the year had continued into the second half.
Barclaycard customers, who include personal loan clients as well as credit card holders, defaulted on £1.1 billion of debts last year.
The stock market brushed aside the news, reassured by the bank’s pledge that all other divisions in the business were performing strongly and the overall group was on course to make record pre-tax profits of £7 billion for the whole of 2006.
Barclays also gave a hint that the rise in problem personal loans was at least getting no worse. “Flows of new arrears and levels of delinquent balances have stabilised,” it said.
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The Barclays figures confirm warnings from consumer and community groups that growing numbers of people were struggling with excess debts.
Citizens Advice said this month that its network of bureaux advised on 1.4 million debt problems this year, up 11 per cent on the previous year. A “deeply worrying” one in five people now goes to CAB for advice on debt.
A Citizens Advice spokeswoman said: “It doesn’t surprise us, because all banks are reporting increasing levels of debt. It does, however, mean that lenders should always make sure that people are able to repay the money before they agree to loans. At the same time, people should be wary of borrowing more than they can realistically afford.”
A record 100,000 people are expected to go bankrupt this year, unable to cope with their debts.
The Government’s Insolvency Service is reporting huge increases in people opting for IVAs — pacts agreed between lenders and borrowers that freeze future interest payments and allow borrowers to walk away from part of their liabilities. Reckless lending, irresponsible borrowing, the erosion of the stigma of debt and low interest rates have all been cited for causing the personal borrowing splurge.
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Barclays said that it had tightened up its lending criteria in recent months. It rejects 57 per cent of credit card applicants. About 50 per cent of its cardholders pay off their balances in full each month, incurring no interest.
Matt Barrett, its chairman, hit the headlines three years ago when he told a committee of MPs that he had advised his own children not to borrow on credit cards because they were too expensive.
The pay-off
1966
year cards were first issued
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11.2m
UK cardholders
95,000
retailer relationships
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£857
average UK balance
50%
proportion of customers paying in full each month
£640m
profit before tax (2005)
Source: Barclays