Barclays and Royal Bank of Scotland
(RBS) have each reported their 2007 interim results. Both banks
cite an easing in bad debt levels in the UK retail credit market,
although pressures on lending volumes remain.

Both are generating respectable profits in their overseas cards
operations. At home, they continue to feel the effects of the UK’s
tough credit environment, on the back of high levels of personal
insolvencies, bankruptcies and greater numbers of people entering
into individual voluntary arrangements.

RBS card balances fall

RBS reported an 11 percent rise in half-year group operating
profit to £5.1 billion ($10.2 billion), while total income rose 8
percent to £14.6 billion. In the first half of 2007, there were
lower credit card late payment fees and lower fee income as a
result of reduced direct lending volumes.

In the UK, results for the group’s cards and direct finance
business reflected the market-wide decline in credit card
borrowing. Income was 5 percent lower as a result of declining card
and direct loan balances and the impact of the Office of Fair
Trading’s ruling on credit card fees.

Effective cost control and reducing credit losses contributed to
a 4 percent increase in operating profit.

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Average credit card balances fell by 10 percent as customers
repaid debt, but RBS was able to offset this with healthy growth
through the recruitment of new card accounts via its branches. RBS
said that the first half of 2007 marked “the turning point in UK
unsecured credit”, and impairment losses fell by 7 percent to £611
million, reflecting improvement in arrears trends in credit cards
and personal loans.

Credit card issuing performed strongly in the first half of 2007
in the US, where the credit card customer base increased by 21
percent. In merchant acquiring, the group’s US credit card
business, RBS Lynk, achieved considerable growth, processing 30
percent more transactions than in the first half of 2006 and
expanding its merchant base by 8 percent.

In its citizens business, customer numbers increased by 5
percent and the business made progress in its efforts to diversify
its income streams away from its traditional deposit products, with
good growth in credit cards and merchant acquiring.

“That diversification has emphatically not included the subprime
credit markets, and we have no regrets over our decision to avoid
this segment,” RBS said.

In its interim report, RBS was quick to play down concerns about
the widening global debt crisis, mentioning its conservative risk
exposure across the whole group.

Barclaycard profit slumps

Barclays announced a 12 percent rise in profit before tax of
£4.1 billion and total income net of insurance claims of £11.9
billion, compared with £10.9 billion in the year-ago period.
However, Barclaycard’s profits plunged 17 percent to £272 million
in the first six months of the year, which Barclays attributed to
the impact of a one-off £38 million property transaction in the
previous year that inflated the comparative figure, as well as to a
loss on the disposal of the credit card portfolio of its subprime
subsidiary, Monument, in the first half of 2007.

Outstanding credit card balances in the UK dropped by £1.1
billion to £8.5 billion since the year-ago period and extended
credit balances similarly dropped £1.2 billion to £7 billion, a 15
percent decrease.

Barclays said the amount of money set aside in the Barclaycard
division to cover bad debt fell 9 percent to £443 million, as it
benefited from initiatives such as more selective customer
recruitment. As a result, bad debts in the UK cards industry have
fallen as the number of personal customers missing payments
steadily declines.

Barclaycard International has continued to grow and moved into
the black during the first half of 2007, showing a £26 million
pre-tax profit – up from an £8 million loss this time last year.
The Scandinavia-based Entercard joint venture with Swedbank has
continued to gain momentum ahead of expectations, and new card
products were launched in India and the United Arab Emirates.

Barclaycard US has also moved into profit this year. It formed
several new card partnerships with Aer Lingus and ATA Airlines and
the business posted strong average balance growth.

Internationally, extended credit balances have risen by 35
percent from £2.3 billion to £3.1 billion. This is reflected in a
rise of 2.3 million issued Barclays credit cards, taking the total
number to 7.6 million worldwide.

Truong Mellor