Barclaycard suffers as consumers continue to pile up bad debts

Barclays' finance director Naguib Kheraj yesterday admitted that there was no end in sight to the rising tide of bad debts engulfing Barclaycard.

A sharp increase in the number of personal insolvencies in Britain has badly hit profits at the division, fuelled by the growth in individual voluntary arrangements - an easier form of insolvency than bankruptcy in which lenders have to write off a portion of their customers' debts.

The news overshadowed Barclays' forecast that full- year profits would meet the City's estimate of a 32 per cent rise to a shade under £7bn. The shares slipped 7.5p to 676.5p.

Mr Kherhaj said that there had been no slowdown in the rate of growth of bad debts, which increased by a third in the first half, excluding Barclays' South African subsidiary Absa. He said profit growth at Barclaycard had been "more than offset by impairment increases".

"The outlook remains challenging as bankruptcies and IVAs continue to increase. It is still too early to call a turn."

Mr Kheraj insisted tougher credit controls at Barclaycard were having an effect, but warned that bad debts were likely to settle at a higher level than previously when the current rapid increases come to an end.

Barclays is the first of the banks to issue the now traditional pre-close trading statements ahead of its full- year results next year.

Analysts at Dresdner Kleinwort Wasserstein (DKW) saidbad debt at Barclaycard was a "fiasco" and a "huge embarrassment over the past two years".

"Today's trading statement confirms that the rate of growth in impairments has not slowed in [the second half]with Barclaycard profits still going backwards."

Despite this, Barclays said Barclays Capital, its investment banking division, continued to power ahead. The bank said income and profits for the third quarter outstripped those of the same period last year, which had been exceptionally strong.

Mr Kheraj, in a conference call with analysts, also faced tough questioning on the performance of Woolwich, the bank's under- performing mortgage arm.

James Eden, from DKW, pointed out that despite new products offering better value than Halifax, Barclays was selling only a fraction of the mortgages that its rival achieved. He asked if there were problems with the company's sales culture.

Mr Kheraj said Woolwich's sales were improving, but added: "They [Halifax] obviously have more than 20 per cent of the market share so they will sell more than we do. They are very good at selling mortgages."