Bank of Scotland warns of threat of slender margins

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BANK OF SCOTLAND yesterday warned that intense competition to lend to big companies was driving banks' margins down to unprofitable levels.

This confirmation that banking for big companies is returning to the conditions last seen in the boom years of the 1980s came as Bank of Scotland announced half- year profits up from pounds 117.6m to pounds 213.2m before tax.

The bank said that the pressure came because other banks were seeking to recover market share lost in 1990-93, when a number of lenders withdrew from the market.

Robin Browning, general manager, said it was not having any serious impact on Bank of Scotland 'but we thought we would indicate to analysts that these pressures are reappearing'.

He said he had heard of some banks lending at 'horrendously low' margins of about a quarter per cent over the cost of money, and it was 'very difficult to see how any lending institution can make any return at that level'.

Mr Browning blamed 'one or two' London-based clearers and a number of overseas banks in London.

Bank of Scotland might consider low-margin lending with long-established and well- connected customers, he said, 'but we are certainly less enthusiastic about bidding for new business at these very, very low margins'.

The bank's bad debts continued to fall, to pounds 109.8m in the half-year from pounds 125.9m in the second half of last year and pounds 157.9m a year ago.

The difficult sectors continue to be property, hotels and leisure. Non-performing assets fell from pounds 1.22bn to pounds 1.16bn. The bank sold a number of properties taken over from defaulting customers, but this will not be completed for two to three years.

As Bifu, the banking union, attacked Royal Bank of Scotland over plans to close 55 branches in Glasgow, Edinburgh and Manchester by early 1996, Mr Browning said Bank of Scotland had no plans for closures.

The bank disclosed that staff could receive a profit-sharing bonus of as much as 10 per cent of their salaries this year. It has set aside pounds 12.6m for profit-sharing in the first half, more than the pounds 11.4m for the whole of last year.

The interim dividend was raised by 13.9 per cent to 2.13p.