Barclaycard cuts credit limits as debts rise

Barclaycard has cut the credit limits of 83,000 customers in the last six months in an attempt to stop them amassing more debt than they can afford to repay.

The move by the credit card arm of Barclays was revealed yesterday as the group admitted bad debt charges had risen significantly. Barclaycard is turning away one in two applications, against the previous 40%.

The rise in bad debt provision dented results of Britain's oldest and largest credit card company, which reported a 17% fall in profit to £379m. Barclaycard was forced to increase its bad debt charge by 42% to £508m.

Not all the rise was the result of trouble with card repayments; some was the result of higher volumes being driven through the business, in part because of the acquisition of Juniper in the United States.

Barclays confirmed the trend that has emerged through the reporting season of the industry's six-month profits. The rises in bad debt provisions, known as impairment charges under new accounting rules, have largely come from unsecured debts such as credit cards and personal loans, rather than from mortgages.

Barclays said overdrafts and consumer loans had seen only a modest increase in provisions and credit cards were where the rises were taking place.

Overall, the bank reported a 9% rise in pre-tax profits to £2.7bn for the first six months of 2005 while its total bad debt charge rose 20% to £706m.

The better-than-expected profits helped Barclays shares rise 17p to 576p, making them one of the day's biggest risers. Gary Hoffman, Barclaycard's chief executive, admitted that while it was unusual for card firms to cut credit limits, it was a process that had begun last year and had been stepped up into the last six months. He said the problems started to arise from higher council tax and utility bills and mortgage costs.

However, he emphasised that the number of customers who were more than three payments behind amounted to just 1% of Barclaycard's base.

The credit card industry has faced scrutiny by the Treasury select committee regarding its lending practices. It was at one of the select committee meetings that Matt Barrett, now the chairman of Barclays, admitted he did not use a Barclaycard to borrow money.

The industry is also under pressure from the Office of Fair Trading, which last month ordered the biggest card providers to cut the default charge, the £20-£25 penalty levied on customers who fail to pay on time. The OFT has given the industry three months to act or find another way to address concerns over high charges.

Barclays refused yesterday to say how much it makes from such charges but admitted it was looking at how to "mitigate" the outcome for shareholders. John Varley, the chief executive, refused to elaborate on what this might entail.

The retail banking arm saw a 2% fall in profits to £558m, with the main engines of profit growth coming from the business banking arm, where profits were up 20% at £604m, the investment banking business Barclays Capital, where profits rose 20% to £588m and fund management arm Barclays Global Investors, which reported a 60% rise to £151m.

Mr Varley now has great hopes for Absa, the South African bank Barclays bought recently and whose first profit contribution will be seen in the second half of the year.

The dividend has been increased by 12% to 9.2p.