Following Barclaycard’s November trading update in
which it estimated no reduction in the level of unsecured lending
bad debts, UK banking group HSBC has pointed to a rise in loan loss
impairment charges caused by a tide of rising insolvencies and
bankruptcies in the UK. In a trading update ahead of its close
period for the year ending 31 December 2006, HSBC said that loan
impairment charges in the third quarter were “modestly” up on both
the previous quarter and the prior year quarter.

The bank said that underlying revenue growth in personal financial
services moderated slightly in the third quarter from that achieved
in the first half of the year due to seasonal factors, slower loan
growth and pressure on lending margins in many markets. In the UK,
continuing high levels of consumer indebtedness, together with the
continuing growth in personal bankruptcies and individual voluntary
arrangements (IVAs), led to a more restricted credit appetite,
which resulted in slower unsecured lending growth with
consequentially lower revenues from credit-related insurance.

HSBC said that the trend of rising personal bankruptcies and IVAs
seen since the second half of 2005 looks unlikely to abate in the
medium term, and continues to be the major influence on loan
impairment charges in personal loans and credit cards. However,
HSBC in the UK continued to grow strongly in the area of savings
products and in transactional accounts, within which fee-bearing
packaged accounts are growing on an accelerating basis.

Strong growth in US

In the US, strong performance in consumer lending and cards within
HSBC Finance continued. Loan delinquency and impairment trends
remained in line with recent historical experience but increased
against the first half of the year, principally as a result of a
combination of factors, namely growth and seasoning of the
portfolio, the declining beneficial impact derived from the
acceleration of bankruptcies brought about by the change in
bankruptcy law in October 2005, and the impact of a weaker housing

In the Asia-Pacific region, HSBC said, the high level of loan
impairment charges taken in the second quarter of 2006 in respect
of credit card lending in Taiwan and Indonesia did not repeat to
anything like the same extent in the third quarter, leading to
substantially improved performances in these countries.

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Overall, HSBC said, financial performance in the third quarter of
2006 was ahead of the prior year comparative quarter. It said
investment in organic growth opportunities continued to be
strongest in the emerging markets personal and commercial banking
businesses, most notably in Mexico, India, Turkey, the Middle East,
Brazil and across Asia, including in mainland China. HSBC said that
aggregate pre-tax profit growth in the third quarter in the
emerging markets businesses maintained the rate of progress
achieved in the first half of the year against the prior year
comparable period.

Asia, including Hong Kong, continues to offer the strongest growth
prospects for HSBC in the near term, together with the economies of
Latin America and the Middle East, all linked in part to the strong
growth in the Chinese economy and its impact on its trading

RBS profits on track

Royal Bank of Scotland (RBS) also gave a trading update, in which
the bank said it was performing well and results for 2006 are
expected to be slightly ahead of market consensus forecasts of £9.1
billion ($17.6 billion). Highlights of the group results for 2006
are expected to include good organic growth in income, an
improvement in efficiency, strong credit metrics and stable

Overall credit metrics are expected to have improved with total
impairment losses representing a slightly lower proportion of total
loans and advances. Income from RBS’s Retail Markets division is
growing well, particularly from savings and bancassurance products.
This, as well as stronger mortgage lending in the second half, has
offset weaker demand for consumer credit, and growth in unsecured
impairment losses continues to moderate.

Fred Goodwin, CEO of RBS, said: “Our 2006 results will underscore
the diversity of our income and inherent strength of our business
model. We expect to deliver profitable organic growth and
improvements in key financial metrics, while continuing to invest
in our businesses and generating surplus capital. I believe these
attributes will be every bit as important in the year ahead as they
have been in 2006.”