HSBC launches Big Five week with report of large gains

HSBC, Britain's biggest bank, comfortably beat City estimates yesterday with an 18% increase in first-half pre-tax profits to $12.5bn (£6.7bn), driven by strong performances in corporate lending and investment banking.

But the group also reported a 36% surge in bad debts among its personal customers in the UK, taking the figure for the first half up from £265m to £361m. Chairman Stephen Green said the increase reflected a significant rise in bankruptcy filings and voluntary insolvencies, which now account for around one third of UK personal bad debts.

He highlighted the "obligation" of the banks to play their part in preventing high levels of consumer debt. "Excessive consumer indebtedness is increasingly an issue in the public domain," he said. "Banks have an obligation here. We were the first major UK bank to share positive credit information, and we have deliberately reduced our market share of unsecured lending in the UK."

Dyfrig John, chief executive of the UK banking side, said the group's decision in 2004 to tighten up on lending was starting to show through in a lower proportion of loans going bad, but he expressed concern about the rise in bankruptcies. And he was critical of debt management companies that encourage individuals into taking the bankruptcy option - and collect a fee - when they would be better off repaying their debts over a longer term.

Figures yesterday from the Bank of England showed consumers were less willing to run up credit card debt last month than at any time in 12 years. Unease over personal debt, rising energy bills and the threat of higher interest rates meant net lending in June was £43m - the smallest increase since the economy was emerging from recession in 1994.

Vicky Redwood, analyst at Capital Economics, said the new mood of caution "might reflect the recent tightening in lending criteria". She added, however, that another factor was probably "the high cost to households of servicing the mountain of debt they have already built up".

Overall consumer credit - of which credit-card lending forms a part - rose by £0.9bn in June, less than half the monthly increases seen during the debt-driven spending spree of two years ago.

At HSBC, worldwide bad debt provisions rose by almost 19% to $3.89bn, although this was not as large as most analysts had expected.

The heavy investment made by the group in its corporate, investment banking and markets business paid off over the first half in a 37% profits surge to $3.1bn.

Mr Green was upbeat about prospects for the rest of the year, saying the world economy remained "fundamentally strong" although he highlighted the potential impact of higher energy costs and rising inflation, together with a slowdown in housing markets.

The group will not scrap free banking in the UK in response to the OFT's demand that banks cut charges to customers who are late paying their credit card bills. "HSBC has no plans to end free banking," Mr John said. "It will always offer a free bank account."

HSBC is the first of the Big Five banks to report this week. HBOS reports today, LloydsTSB on Wednesday, Barclays on Thursday and RBS on Friday. Together they are expected to report bumper profits of more than £18bn.