Retail banking 'set for losses'

Retail banking is still struggling, despite big profits in investment banking

The retail arms of the UK's High Street banks are likely to see losses in the second half of 2009, a survey suggests.

The KPMG UK Banks Performance Benchmarking Survey says that despite modest profits in the first half of the year, bad loans would lead to losses.

It says losses from bad loans will not peak "until 2010 or beyond."

Three of the four major High Street banks reported profits in the first six months of the year, boosted by their investment banking operations.

"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 the year," says KPMG.

It adds that competition for savings accounts and the increased cost of lending between banks has impacted retail banking.

Looking ahead, KPMG says that continued uncertainty in the mortgage market will make life difficult for retail banks.