Barclays bad debt level hits £1bn

Barclays has been forced to set aside more than £1bn for the first time after its bad and doubtful debts doubled, the bank revealed yesterday, as more of its customers failed to meet repayments on credit cards and personal loans.

Like banks HSBC and Lloyds TSB earlier this week, Barclays, the country's third biggest lender, attributed much of the steep rise in personal bankruptcies among its customers to changes in insolvency laws in 2004. But steeper mortgage payments and higher energy bills are also a contributory factor.

Barclays said it had taken steps over the past 18 months to tighten its lending criteria, but the measures were unlikely to have a marked effect during the rest of this year.

Meanwhile, Debt Free Direct, the country's biggest provider of independent voluntary arrangements to those heavily in debt, yesterday denied suggestions made by HSBC earlier this week that it encouraged borrowers to declare themselves bankrupt in order to make a profit for itself.

John Varley, Barclays' chief executive, said it was too soon to declare that the bank's bad debt problems had peaked.

"It's too early to call a turn, because the environmental conditions that are putting pressure on some households remain," he said.

More borrowers are likely to find themselves under pressure after the Bank of England surprised economists and lifted interest rates to 4.75 per cent yesterday.

Bad debts hit profits hard at Barclaycard, the bank's struggling credit card operation. Barclaycard's profits fell 14 per cent to £297m before tax.

Impairment charges at Barclays' domestic retail bank, which lent 19 per cent more to customers in the first six months of this year compared with the same period last year, jumped 30 per cent. However, profits before tax at the division, now led by Deanna Oppenheimer, grew 12 per cent to £612m.

Across the Barclays group as a whole, pre-tax profits jumped 37 per cent to nearly £3.7bn, a record for the bank. The surprisingly strong profits and revenues, which climbed by a similar increment, were driven largely by stellar performances from the three divisions run by Bob Diamond, Barclays' president and star banker.

Profits soared 66 per cent to £1.25bn before tax at Barclays Capital, its investment bank. They were more than 50 per cent higher in the Barclays Global Investors fund management arm, and 31 per cent greater in its wealth management operation.

James Eden, a banking analyst at Dresdner Kleinwort, told clients: "Bob Diamond's empire goes from strength to strength. He is almost taking the top job by stealth, controlling an ever greater share of group profits."

Businesses controlled by Mr Diamond were responsible for 45 per cent of Barclays' profits in the first half of this year. That put him well on course to maintain his £15.25m salary in 2006.