London Scottish Bank is shutting eight of its branches after seeing a rise in its bad-debt levels and a fall in demand for new loans.
London Scottish warned of a rise in bad-debt charges
The firm, which lends to households with poor credit histories, said loan applications fell markedly over the past six months.
Bad-debt charges arising from consumer loans rose 45% to £6m over the period.
The bank said higher interest rates and weak consumer confidence made its second-half outlook less certain.
Staff at the eight affected branches will be redeployed to the bank's 89 other branches.
Several leading UK banks, including HSBC and Barclays, have warned of a rise in the level of bad debts in the past few weeks as the slowdown in the housing market and the effect of last year's interest rate rises have put pressure on household finances.
London Scottish Bank's bad-debt charges arising from arrears on loans increased £2.7m to £6m in the six months to the end of April.
A signficant fall in loan applications and completions in January and February led to a decline in profits from consumer lending while income from commission on new business fell 29%.
At a group level, however, the company still managed to increase its profits by 7.6% to £9.9m.
The company's decision to rationalise its branch network is part of a restructuring programme which has seen it invest heavily in new IT platforms.
"Whilst we are currently progressing a number of management initiatives to improve performance, uncertainty regarding interest rates and consumer confidence is likely to have some impact on second-half prospects," said chairman Trevor Furlong.