HSBC keeping careful eye on retailers' credit quality

HSBC added to growing concerns about the outlook for UK banks yesterday triggered by the consumer slowdown when it said that it was keeping a close watch on the credit quality of retailers and housebuilders.

HSBC added to growing concerns about the outlook for UK banks yesterday triggered by the consumer slowdown when it said that it was keeping a close watch on the credit quality of retailers and housebuilders.

Douglas Flint, its finance chief, said: "We remain cautious on the outlook" for the bank. Commenting on credit quality, he said there were signs of "weakness in retail supply chains". Last week, Barclays issued a stern warning about rising consumer bad debts.

Mr Flint said: "In commercial and corporate lending we continue to be in an environment where gross charges continue to be favourable ... The extent to which that is going to change is clearly something that we keep a careful eye on." He went on to say: "The retail segment and the supply chain to the retail segment is clearly something that is under scrutiny. We will keep a careful eye in the UK on housebuilders."

Many British retailers have issued grim trading updates in recent months as consumers tighten their belts following a series of interest rate hikes and a cooling housing market. A survey from the CBI yesterday indicated that retail sales fell again in May, with retailers' expectations for June the worst in 13 years.

Sir John Bond, HSBC's chairman, said last week that the group's first-quarter results were in line with its expectations despite a "marked" increase in bad consumer debts. But he added that the increase was "manageable" for the bank, which generates only a quarter of its profits in the UK. But traditional UK retail banks, such as Lloyds TSB, could be hit worse.

Mr Flint said yesterday that the deterioration in UK consumer quality was largely restricted to unsecured lending, particularly on loans written in early 2004, while mortgage lending was little affected.

HSBC and the Amicus union both said that they were eager to return to the negotiating table to resolve a pay dispute, which led to the first banking strike since 1997 last Friday. The union said further one-day strikes could follow if no agreement was reached.