Banks get little credit from watchdogs

Consumer groups have seen little evidence of better service from the banks over the past year, in spite of claims from some banks when they presented their half-year results this week that complaints have dropped.

Jean Eaglesham, head of the money group at the Consumers' Association, said: 'Our impression is that the level of service generally has not improved significantly.'

She added: 'The biggest single problems remain lack of clarity over charges, and sheer incompetence. We have yet to see that improve.'

There had been one or two initiatives, such as pre-notification of charges by some banks and simplification of charges for overdrafts. But the association had not noticed much effect on overall service quality.

Laurence Shurman, the Banking Ombudsman, is expected to receive another record number of complaints in the 12 months to the end of September, although the increase will not be as steep as in previous years.

Complaints about cash withdrawals from machines have dropped significantly. This is because of changes in the code of banking practice which shift the onus to the bank to prove that phantom withdrawals are negligent or fraudulent.

Nick Rodgers of the Bank Action Group, which campaigns mainly for small businesses, said: 'We are swamped with complaints. It has got to the stage where we can't cope with the volume.' Checks on companies' bank statements showed overcharging was 'a serious situation and doesn't appear to be getting any better'.

Another source of friction is branch closures, which are hitting customers in large cities as well as rural areas.

Barclays has closed 128 branches in the past six months and 189 last year, while staff numbers in the UK bank have dropped 7,400 in 18 months, with 3,000 going this year.

The big five, Barclays, National Westminster, Abbey National, Lloyds and Midland, have shut 207 branches this year and cut 6,600 jobs in a bid to reach US levels of productivity, which are claimed to be 50 per cent higher.

This week they reported total profits of pounds 1.94bn before tax in the first six months of this year, more than twice the pounds 900m they made in the second half of 1992, mainly because bad debts caused by the recession began to fall.

The figures showed little evidence of big across-the-board increases in charges. Profit margins on loans in the UK remained stable or shrank slightly as base rates fell, reducing the profit from current accounts that pay no interest.

Fees and commissions - including bank charges - are now nearly half of most banks' income, but were down or rose slightly, except at Abbey National where the increase was 21 per cent, largely from activities outside banking such as selling insurance. Abbey has bowed to consumer pressure and dropped plans to introduce charges on current accounts in credit.

Sir Peter Walters, chairman of Midland Bank, said this week there had been a marked reduction in customer complaints after a campaign to improve relationships with personal customers that included removal of 'irritating' charges, such as those for letters from bank managers warning of breached overdraft limits.

City analysts say the banks' combined profits could be running at more than pounds 8bn a year by 1996 as the economy revives and the cost of bad debts falls. Bank shares have been the best performers on the stock market over the past year.