The interim reporting season kicks off on Friday 29 July with Lloyds Bank, headed by Brian Pitman, which is expected to increase pre-tax profits from pounds 498m to pounds 535m.
Bad-debt provisions for all the big five are expected to fall from pounds 2.4bn in the first half of 1993 to pounds 1.8bn this time, according to Rob Law of Lehman Brothers. This reflects a fall in company receiverships of about a quarter over the same period.
As further falls in bad debts feed through, the banks are expected to do even better next year. HSBC, for instance, is expected to make pre-tax profits for 1995 of more than pounds 3bn, making it one of Britain's most profitable companies.
Barclays, however, should produce the most spectacular jump, with profits up from pounds 335m to around pounds 690m. Abbey National's profits will rise from pounds 301m to around pounds 420m, while NatWest will advance from pounds 421m to around pounds 660m.
But the City is worried that the good news on bad debts masks a fundamental lack of growth in demand for loans, the banks' staple business. Companies and individuals have been deeply scarred by the long period of high interest rates during the recession, and many are either still paying back loans or putting off further borrowing.
There is a further worry that low interest rates - which, despite much speculation, seem destined to stay that way for some time to come - are damaging the banks' margins.
Interest rates rather than competition are the key to squeezed margins. Lending spreads - the difference between what the banks pay on deposits and what they charge for loans - have held up quite well over the past two years.
Some, such as Barclays and Midland, have successfully hedged against low interest rates, and have suffered less. Lloyds has done so to a far lesser extent, and its key domestic margin has fallen from 3.8 to 3.54 per cent in 1983. By contrast, Barclays' margin rose from 3.03 to 3.05 per cent.
Dealing profits are expected to be far lower than in the boom days of 1993. Banks with large investment-banking arms - Barclays, HSBC and NatWest - will suffer accordingly.
On a brighter note, the banks will take an aggressive stance on dividends in an attempt to make up for investor dissatisfaction during the worst years of 1990-1992. An average 15 per cent rise is expected, with Abbey National the biggest at 19 per cent. NatWest is forecast to bring up the rear with a rise of about 11 per cent.
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