Bad debts blow to Bank of Scotland

(First Edition)

AN 11 per cent drop in profits before tax at Bank of Scotland to pounds 125.3m in the latest 12 months was yesterday blamed on sharply higher bad debts, as the recession failed to ease as fast as expected, writes Peter Rodgers.

Bruce Pattullo, the governor, warned that press criticism of bad lending by banks could be counter-productive during the recovery, because it would undermine managers' self-confidence.

He said: 'If branch bankers have their heads down and are being pilloried they will not be as energetic in pushing marginal lending proposals into a shape that becomes viable and durable.'

Specific bad debt provisions rose 54 per cent to pounds 361.9m and were found across the board in the UK. The bank said few customers required provisions of more than pounds 5m, but it is known to be a big lender to Isosceles and is thought to have lent about pounds 50m to Queens Moat.

Provisions in the six months to February worsened to pounds 234m from pounds 138m in the previous six months as the economy failed to recover, unlike Royal Bank of Scotland, which on Wednesday reported a six-monthly fall in bad debts.

However, Bank of Scotland's underlying business improved strongly, with a rise in operating profit of 24 per cent and it predicted that the recovery would continue through the summer. The dividend was 4.57p against 4.35p last year.

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