Drop in bad debts puts HBOS on a record year

HBOS, Britain's largest mortgage lender, today became the latest High Street bank to tell investors that 2007 will be another record year with profits busting analysts's forecasts.

It said bad-debt write-offs would be lower than predicted as the policy of tightening up lending criteria several years ago was paying off.

The City had expected bad-debt impairment to rise from £1.6 billion in 2005 to £1.9 billion this year, but the bank signalled it will be lower than that.

This means it will beat the £5.35 billion target analysts had pencilled in and compares with the £4.84 million underlying pre-tax profits in 2005.

HBOS added that it plans another share buyback during 2007 with an initial target of returning at least £500 million to investors via market purchases.

It also expects to increase its asset base or loan book during the coming year in all areas except unsecured loans where it remains cautious.

HBOS now joins Royal Bank of Scotland and Lloyds TSB in signalling an improvement in bad debt write-offs.

This is in contrast to HSBC and Barclays, which both indicated they thought the consumer credit crisis was set to continue as customers struggle to pay off their unsecured loans and credit card bills.

Analysts, however, reckoned that most of HBOS's improvement will have come from its commercial rather than retail loans portfolio.

The bank's share of the UK mortgage market has shrunk in recent months with the 21 per cent slice taken in the first half likely to be down to between 17 per cent and 18 per cent for the full year, according to finance director Phil Hodkinson.

The profit improvement will come despite HBOS being shamed into paying £2 million into Farepak, the failed Christmas hamper scheme to which it was banker.

HBOS shares rose 21p to 1105p, with analysts tweaking their profit forecasts slightly upwards for this year but most leaving next year's forecasts unchanged.

NewsSource: http://www.thisislondon.co.uk/