Lloyds TSB profits up 8% to £1.75bn

Britain's fifth biggest bank, Lloyds TSB, today posted half-year pre-tax profits of £1.75bn, up 8%, despite a surge in bad loans.

As with other banks reporting this week, Lloyds TSB saw a sharp rise in provisions to cover bad debts, reflecting changes to personal bankruptcy laws.

For the six months to 30 June, the owner of Cheltenham & Gloucester and Scottish Widows said impairment losses on loans and advances increased by a fifth to £800m. In the UK, bad debt provisions was up by £86m, or 16%, to £632m.

"The deterioration in the unsecured consumer lending environment, particularly reflecting the changes to personal bankruptcy laws, that we highlighted earlier in the year, has led to an increase in our impairment charge," said the chief executive, Eric Daniels.

Like its rivals, Lloyds is feeling the effect of the increase in personal bankruptcies, now at record levels since the 2004 Enterprise Act made bankruptcy more of an option for those with financial problems.

"The rate of growth in the number of customers filing for bankruptcy and IVAs (individual voluntary arrangements) does, however, remain a key factor in the outlook for retail impairment," the bank said.

But Britain's biggest unsecured lender said it expected greater stability in the second half of the year following a change in lending criteria.

Lloyds said almost all new personal loans and 80% of new credit cards sold during the first half of 2006 were to existing customers, giving the group had a better understanding of people's financial positions.

Unsecured consumer lending accounts for 12% of Lloyds TSB's customer lending. The bank said its overall credit quality remained strong given its strong corporate lending and mortgage businesses.

A tight lid on costs helped boost performance. During the first half of 2006, operating expenses increased by only 1% to £2,61m. In the past year, the bank cut staff by 4,438 (6%) to 65,167, largely as a result of improved efficiency in back office processing centres and the reduction of administration in the branch network.

"Lloyds TSB had a pleasing first half of the year," Mr Daniels said, "as we delivered a good level of earnings growth despite the anticipated higher impairment losses in our unsecured consumer portfolios."