Barclays credit card division hit by bad debts and non-repayment |
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Sat, 28 May 2005 15:55
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Britain's biggest credit card lender, Barclays issued a warning that profits in its credit card division had taken a dip as customers had defaulted on repayments and also because bad debts were on a rise.
The bank issued a statement saying, "Impairment losses rose significantly, reflecting increased delinquent balances and severity rates in the UK cards business and changes in recognition methodology. The impact of higher impairment losses, combined with the continued investment in the business, more than offset the improved income performance." Until now, it was the retailers who were moaning of poor returns, but official figures estimate that consumer debt has surpassed £1,000bn. Growth in the housing market has also been affected.
| Barclays also said that the higher interest rates could be a reason for the non-repayments. "The slowdown across the consumer credit sector resulted in a rise in potential credit risk loans and consequent increase in impairment losses. The increase in delinquencies was most noticeable in credit cards, with a significantly smaller impact in consumer loans and mortgages," the bank said.
A bank spokesman added, "This is not like the 1990s, when there was very high interest rates and unemployment. Consumers are just being affected by things like higher taxes and utility bills and are deciding how to prioritise their spending. Other parts of the economy are still growing and most forecasters expect that the next move in interest rates from the Bank of England could be down."
Commenting on the poor performance of the cards' division, Barclays' finance director Naguib Kheraj said, "I would not say that we have been caught unawares. It has gone a little bit faster in the cards sector than we expected, but the direction isn't a surprise at all."
However, inspite of this downer, the bank said it had managed to deliver "good profit growth in the first quarter of 2005".
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