Specialist lender London Scottish Bank is to close eight of its 97 branches claiming the implementation a new IT platform as its main reasons for doing so.
In its interim results for the period ending 30 April 2005, the lender says it has carried out a review of its branch operations in order to ensure delivery of the cost benefits from its investment in new technology.
But it also says its direct unsecured lending business suffered in the first two months of 2005 because of an increase in defaults and arrears leading to increased bad debt charges and provisions. The lender’s bad debt charge rose by £2.7m to £6m (up from £3.3m in 2004.
Patrick Toyne Sewell, a spokesperson for London Scottish Bank, says the increase in the lender’s bad debt charge is related to the acquisition of Morses, a small direct-to-consumer sub-prime lender, six months ago.
“London Scottish had a very good bad debt ratio until the purchase of Morses but Morses has affected that. It has a much higher levels of bad debt and if you were to strip out that level of bad debt then the situation for London Scottish would be broadly similar to last year,” he says.
Toyne Sewell denied the closure of eight branches was connected to the increased bad debt charge the lender has accrued, claiming there were a number of Morses branches and London Scottish branches which were very close to one another and the implementation of the new IT platform had allowed the lender to close branches in order to make efficiencies. Around 25 jobs are expected to be affected.
Trevor Furlon, chairman of London Scottish bank, adds customer accounts at these eight branches will be transferred to other local branches while staff will be redeployed within the company.
“While we are currently progressing a number of management initiatives to improves performance, uncertainty regarding interest rates and consumer confidence is likely to have some impact on second half prospects,” says Furlon.
Other UK banking institutions, including HSBC and Barclays, have in recent weeks voiced concern about rising bad debt levels and the slowdown in the housing market, citing the increase in interest rates as the primary cause.
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