Alliance & Leicester said yesterday that its first-half revenues were flat despite big growth in unsecured lending.
But the country's eighth biggest bank assured investors that its asset quality was strong and that it has so far not seen the rise in bad debts reported by some of its rivals.
"Total group revenues for the first half of 2005 are expected to be broadly similar to 2004," A&L said in a preclosed period trading statement.
"The group's asset quality remains strong and above average in each business sector," the Leicester- based lender said.
The performance of UK banks was buoyed last year by house-price and consumer booms that are now fading, and investors are concerned about rising bad debts and reduced revenue growth.
A&L has been cautious on mortgage lending during the house-price boom and has turned its back on the buytolet market.
Instead it has boosted unsecured lending because it says arrears are more predictable.
Unsecured lending totalled £890 million in the first quarter, up from £587 million a year earlier, but lower margins contributed to a squeeze on group profitability.
Unsecured arrears stood at 4.2 per cent at the end of May, unchanged since December, and mortgage arrears were slightly up at 0.68 per cent of the book but were " significantly " below the industry average.
"You have got pretty rapid growth in the unsecured book yet you have got flat revenues, so they are running hard to stand still," said Lehman Brothers analyst Alex Potter.
Finance Director David Bennett defended the bank's plans when questioned by analysts.
"We have always targeted high quality business, possibly at slightly lower margins. We are very happy with our own performance. We are not changing our strategy," Mr Bennett said.
Alliance & Leicester's firsthalf retail banking loan-loss charge will be about £ 30 million, up from £18 million a year earlier because of asset growth, unusually low provisions in 2004 and new accounting standards, he added. "The increase is in line with our assumptions and doesn't reflect any decline in the quality of assets."
Britain's biggest unsecured lender, Lloyds TSB, said on Monday that retail bad debts were rising.
Sales of Legal & General household and life insurance fell in the first quarter because many mortgages were sold to people moving their mortgages who already had insurance, Alliance said.
In a note to clients, analysts at Keefe, Bruyette & Woods said the bank's comments on bad debts would "come as a pleasant surprise when most banks have been reporting varying degrees of deterioration".