London Scottish posts £15.7m loss as bad debts hit £32.3m

by Gill Montia

Story link: London Scottish posts £15.7m loss as bad debts hit £32.3m

London Scottish Bank has posted a loss of £15.7 million for the 2006/07 financial year, having made a profit of £15 million in 2005/06.

The bank, which specialises in lending to low-income families and also operates as a debt collector, has experienced a sharp rise in bad debt with the result that losses are well beyond the £11 million forecast by analysts.

In the 12 months to the end of October 2007, losses at its unsecured consumer lending business amounted to £22.4 million compared with a profit of £5 million a year earlier. Bad debts increased 25% to £32.3 million.

However, profits from the group’s debt collection business increased by 57%, to £13.9 million, while its mortgage and secured lending business posted a 20% rise in profits, to £3.3 million.

Turning to the first-quarter of the current financial year, unsecured consumer credit lending made a £1.9 million loss compared with a £600,000 profit in the same period of 2006/07; profits from debt collection have declined from £3.7 million to £1.9 million.

Last month, the Financial Services Authority (FSA) used new regulations on the liquidity status of banks to order London Scottish to increase its reserves. The FSA estimated that the bank had a capital shortfall of £12.7 million.

In response, the group is developing plans to sell part of the business and secure new funding.

It may dispose of its invoice factoring business and withdrawing or sell its consumer lending operations.