Alliance & Leicester yesterday revealed a sharp slowdown in unsecured lending after tightening its criteria for loans in a slower market.
The banking group said unsecured personal loan advances were £565 million in the first quarter of 2006, compared with £890 million for the same period a year earlier.
It added that the proportion of balances in arrears at the end of May stood at 5.7 per cent, against 5.1 per cent at the end of last year.
Alliance, the UK's seventh largest bank, pointed out that new lending was of better quality than in 2005 after it tightened its criteria in the face of a tougher consumer environment.
In a trading statement ahead of half-year results on July 28, Alliance said its focus on residential mortgages paid off with growth in market share. Gross lending in the first quarter was £3.2 billion, resulting in a market share of 4.3 per cent - far higher than the 2.7 per cent seen a year earlier.
Alliance said its share of the net mortgage lending market was 6.3 per cent, up from two per cent last year, after loans worth £1.4 billion in the period. It said it would soon start to distribute buy-to-let, self-certified and sub-prime specialist mortgage products.
Alliance added that the quality of its mortgage book remained "excellent" with the proportion of accounts in arrears lower than at the end of 2005. The company did not comment on the takeover situation regarding possible interest from Credit Agricole.
The French banking group said in May that Alliance was among potential targets, but stressed it had not put any proposals to the company's board and its evaluation of future growth opportunities was at a preliminary stage.
Investors have been on standby for a takeover in the UK banking sector for several months, with Alliance seen as the leading candidate.
As well as Credit Agricole, speculation has linked Abbey National's Spanish owner Santander - a deal that would create a rival to Halifax owner HBOS. Following the results announcement Alliance shares rose 1.3 per cent at £11.79, valuing the bank at £5.3 billion.
The bank's shares have rallied 18 per cent this year, after Agricole's confirmed interest reignited talk of a takeover battle and took shares to a record high of £12.77.
"Expectations of a bid are clearly the main driver, but this looks like a good start to the year," Mark Thomas, analyst at Keefe, Bruyette & Woods, said in a note.
Dresdner Kleinwort Wasserstein also said in a research note: "A&L is the best takeover target (in the UK) because it is small enough that there is a long list of potential suitors, it has no poison pill and it originates all its own business."
David Bennett, A&L's finance executive, said under Takeover Panel rules he was unable to make any earnings forecasts, although he said the bank would have said if expectations were materially different to analysts' forecasts.