Liberal Democrat shadow chancellor Vince Cable has attacked banks for irresponsible lending practices and claims they must now share some of the blame for the rise in personal insolvencies.
His outburst follows the news yesterday high street bank Lloyds TSB’s bad debt provisions have increased 20% in the last twelve months to £800m across the whole group with 16% of this coming from its UK retail business.
Cable says: “The irresponsible behaviour on the part of lenders and consumers over the last few years is now starting to show through in the bad debts that banks have to write off.
“Banks must share some of the blame for rising insolvencies and must act more responsibly in the future.”
While he also concedes “some individuals may have acted recklessly” he says banks are also to blame for increasing credit limits without customers requesting such increases and for “bombarding” individuals with unsolicited mail.
He also expresses concern about increasing affordability constraints suggesting with a rise in interest rates likely in the near future, households are going to struggle more to meet their regular payments.
Personal bankruptcies have risen to record levels in the past year with the Department for Trade and Industry recording an increase of almost 30% in the number of people going bankrupt.
Meanwhile, statistics released by the Bank of England last month show mortgage debt broke through the £1trn barrier in May as an extra £9.3bn was borrowed to buy homes in that month alone.
Financial services analyst Datamonitor also says 2005 saw bad debt indicators have changed direction with mortgage arrears increasing for the first time since 1992.
And data from the Council of Mortgage Lenders reveals repossessions totalled 10,250 by the end of last year while the number of households in arrears on their mortgage repayments had risen to 105,990.
Meanwhile, the number of people receiving country court judgments (CCJ) rose for the first time in over a decade with 573,231 CCJs issued in 2005, a rise of 34,938 on the previous year.
Lloyds is not the only bank to recently record a rise in its bad debt provisions. Barclays has reported in its half year accounts this morning a rise of 30% in charges relating to the writing off of debts. Impairment charges also rose by 50% to £1bn although the bank describes mortgage impairment as negligible.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Matthew West on 020 7484 9893 or email [email protected].IFAonline
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