Credit card debt is set to become the next nemesis of high street banks already reeling from massive losses on bad home loans.New research from accountancy firm KPMG said there is a rising trend in defaults on unsecured loans such as credit cards.
While investment banks return to their winning ways, retail arms are likely to struggle for many months as bad debts erode banks' profitability.
"Retail banking is still just profitable at lower levels, but with rising impairments it seems probable that it will fall into loss making in the second half of this year," the report said.
Unemployment would be the "single most important fact" in determining when banks could expect to see a recovery in loan default rates.The result could be higher lending costs for consumers as banks try to rebuild their margins.
HSBC, Lloyds Banking Group, Royal Bank of Scotland and Barclays all reported profits in their retail divisions for the first six months of the year - but these were squeezed by rising levels of bad debts.
This is worrying news for high street banks which have also been hit with rising home loan defaults.
The Council of Mortgage Lenders announced that 11,400 homes were repossessed during the three months to June, a 14% increase since last year.
The banks themselves have differing views about the outlook for bad debts.
Lloyds, which is 43% owned by the state, said they believed that defaults had reached their peak in the first half of this year.
The bank reported a 60% increase in bad debts to £2.2bn in the first half of this year.
In contrast, RBS, which is over 70% owned by the state, warned that recovery would be slow after they reported losses from loan impairments of more than £7bn in the same period.
News Source: http://news.sky.com