Britain's biggest high street banks will fuel fears that consumers are overstretched this week when they warn that more customers are struggling to repay unsecured loans.
The volume of bad debts is expected to have jumped sharply in the first half of the year, but that will not prevent interim profits at HSBC, Barclays, Lloyds TSB and Royal Bank of Scotland from setting new records, analysts believe.
Alliance & Leicester, Northern Rock and Prudential, owner of the internet bank Egg, all raised their bad debt provisions last week, reflecting a mixture of higher mortgage arrears and sky-high unsecured personal loans.
Fears about the level of bad debts at the UK's leading high street banks come as bankruptcies and house repossessions are on the rise. The Government's latest insolvency figures, which are due at the end of the week, are expected to show another sharp increase in the number of personal bankruptcies. A record 23,351 people sought individual insolvency through the courts in the first quarter of 2006 - almost more than during the comparable period in 2005.
Consumers are failing to repay unsecured loans and credit card bills because of a steep rise in the cost of living. They are paying the cost for a spending spree that ushered in the new century and only petered out last year. On top of that, utility bills have soared.
HSBC, which is run by Stephen Green, is today tipped to announce half-year profits of more than $11bn (£4.9bn), 4 per cent more than the previous year. It will say it has shared £100m of that windfall with its 38,000 employees around the world, who have benefited from share savings plans that mature on 1 August. In the UK, around 18,000 staff will share around £38m, pocketing £2,000 on average from the scheme. The schemes work by allowing employees to buy shares at a discount by saving over various periods.
Lloyds TSB is expected to report pre-tax profits of £1.7bn, up from £1.6bn last year. It has already warned that bad debt provisions in both its retail and wholesale arms will rise by around 15 per cent. According to analysts at Dresdner Kleinwort, HBOS will see its half-yearly bad debts increase to £905m from £767m during the same period last year.
Meanwhile, Barclays is tipped to unveil a 25 per cent-plus jump in interim profits to £3.4bn on the back of a strong half-year at its investing banking division, Barclays Capital, and its fund management arm, Barclays Global Investors.
Next week's interims suggest the "big five" high street banks are on course to beat 2005's record collective profit of £33bn. That is likely to trigger renewed calls for the Chancellor to levy a windfall tax on the banking industry.