Barclays reports record profits

Barclays today reported record first-half profits despite a surge in bad loans at its Barclaycard credit card unit.

For the six months to the end of June, Britain's third-biggest bank made a profit of £2.6bn, 9% higher than the year before.

Like other UK banks, Barclays has seen a rise in bad loans. Barclaycard, which has more than 11 million customers, saw profits slip 17% to £379m as the unit took a £508m charge to cover deteriorating credit quality in the first half of 2005.

Provisions for bad loans and other credit provisions rose 20% to £706m, although Barclays said the rise at Barclaycard was partly due to an increase in lending.

Conditions also deteriorated for the UK high street banking arm, where profits fell by 2% to £549m following a flat six months for income.

Barclays first warned in May that profitability at Barclaycard would be hit by an increase in the number of customers missing at least one repayment. Today's figures show outstanding balances at Barclaycard rose to £10.2bn from £9.3bn a year earlier.

Barclays is the last of Britain's big five lenders to report first-half results amid concern about the rise in bad debts. But lenders have said that the increase is manageable.

Chief executive John Varley said the company had made "good progress" with its strategy over the half year, adding that the economic outlook for the remainder of the year was "fairly positive".

Mr Varley said the outlook for unemployment and interest rates - following yesterday's quarter percentage point cut to 4.5% - was reassuring for the bank's credit position.

The Bank of England lowered borrowing costs from 4.75%, its first reduction for two years, after a consumer slowdown and a rise in unemployment.