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Last Updated: Sunday, 18 February 2007, 13:29 GMT
UK banks 'set for bumper profits'
5 note and credit card
More than 100,000 people declared themselves insolvent last year
The UK's top banks are forecast to rack up combined profits of 38bn for the past year despite continuing fears about their exposure to bad debts.

Barclays, the first of the "big five" banks to report on Tuesday, is expected to see profits rise by a third to 7bn.

HSBC surprised investors earlier this month by putting aside an extra 878m ($1.7bn) to cover bad debts in the US.

But banks have tightened UK lending criteria and analysts believe overall profits will rise from 33bn last year.

Debt concerns

Despite this jump, levels of unsecured lending and customer defaults are still likely to dominate the results of Barclays, HSBC, Royal Bank of Scotland, HBoS and Lloyds TSB, all of which are due to report profit figures in the next 10 days.

Barclays said in November it was continuing to incur higher costs as a result of the sharp growth in personal insolvencies.

On the whole, banks are in rude health
Richard Hunter, Hargreaves Lansdown

A year ago Barclaycard, the UK's biggest credit card lender with 11 million customers, had to write off 1.57bn in bad debts among its card holders, 44% more than the year before.

To help combat the problem, it has been turning down 50% of all new credit card applicants.

But the bank is still expected to show robust profit figures for the past year on the back of stellar growth from its investment banking and fund management businesses.

Cost control

Other banks have been similarly boosted by the surge in takeover activity on global stock markets and by the growth of private client banking for wealthy customers.

According to a poll of leading financial analysts, the top five banks will see combined profits increase from 33.4bn last year.

"On the whole, banks are in rude health," said Richard Hunter, head of UK equities at stockbrokers Hargreaves Lansdown.

"Stringent cost control measures over the last few years have meant that, as for so much of UK plc, strong corporate earnings are being enjoyed."

Despite difficulties in areas of its US business, HSBC is forecast to record profits of about 11.5bn for the past 12 months.

Meanwhile, Royal Bank of Scotland, Lloyds TSB and Halifax Bank of Scotland are expected to report returns of about 9.1bn, 3.6bn and 5.4bn respectively.

The scale of profits is likely to prompt fresh criticism of the City's reward culture following comments by politicians that "excessive" staff bonuses paid should be curbed.

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