Banks continue purge of bad debt from balance sheets

The round of half-year results in recent weeks for the retail banks reveal lenders are reducing bad debts by up to 76 percent in some cases.

Banks continue purge of bad debt from balance sheets

RBS, which recently sold a £200m portfolio to Cabot Credit Management, has slashed the value of non-performing loans (NPLs) it holds by 76 percent since the end of 2013. The face value of bad debt the bank holds has reduced from £39.4bn at the end of December 2013 to £9.3bn as at June this year.

RBS also posted in its results the amount of forbearance in its UK personal and business banking division for the first half of 2017.

The value of portfolios in three months of arrears hit £219m and portfolios in arrears of up to three months amounted to £302m.

Lloyds Banking Group’s half-year results show the amount of forbearance in its UK secured lending division was £1.6bn for the first six months of 2017, compared to £2bn for the previous six months to December 2016.

Barclays’ statement showed that the bank’s retail forbearance balances had fallen nine percent for the first half of this year to £841m, compared to £926m for the previous six months.

The bank said this is due to continued improvement in mortgage and card portfolios driven by the benign economic environment.

As is often the case, conduct issues resurface in interim bank results and two of the major high-street banks have seen a sizeable difference in their litigation costs.

Compared to the first half of last year, Barclays has nearly doubled its costs whilst RBS has cut them by nearly 70 percent. Barclays’ litigation and conduct costs increased by 42 percent for the first six months of this year to £743m, compared to the same period in 2016.

The bank’s charges relating to PPI hit £700m for the first half of 2017, compared to £400m for the same period last year. Barclays said this primarily reflects an increase in higher than expected complaints flow over recent months.

RBS has cut its litigation and conduct costs by about 70 percent from £1.3bn, for the first half of last year, to £396m this year. This year’s costs included a £151m charge in respect of a settlement relating to the mis-selling of mortgages in the US and a £25m charge for the settlement of shareholder litigation on a 2008 UK rights issue.