The retail arms of High Street banks are likely to see losses in the second half of 2009, according to a new survey.
Researchers from the KPMG UK Banks Performance Benchmarking Survey say that despite modest profits in the first half of the year, bad loans would lead to losses.
“Retail banking is just profitable at lower levels, but with rising impairments. It seems probable that it will fall into loss making in the second half of this year,” a spokesman for KMPG said.
Barclays, Lloyds and Royal Bank of Scotland all posted profits from their UK retail arms in the first six months of 2009, but at far reduced levels, as they were hit by, among other factors, soaring bad debts.
Their bottom lines were instead lifted by investment banking operations that benefitted from buoyant market conditions.
KPMG said it expected a positive effect to trickle through for retail and commercial arms as the lenders reprice their products to take account of higher funding costs and as prices stabilise, with margins improving “over the next two years”.
But the survey gave a cautious outlook on bad debts, with retail and commercial impairments in particular expected to remain high “for the foreseeable future”.
It also underlined a rising trend in unsecured impairments – which include credit cards and loans – and said this was not expected to peak before “2010 or beyond”.
As for bad debts from the housing market, KPMG said the outlook remained uncertain, despite indications of a resilient housing market, and said unemployment levels would be crucial.
“Overall, mortgage provisions will be a key uncertainty for retail banks for the foreseeable future,” the survey said.
Lloyds Banking Group told investors earlier this month that its bad debts had likely peaked in the first half – at £13.4 billion – largely because of its tough valuation of real estate assets badly hit in the credit crunch.
