CLYDESDALE Bank has become the latest UK bank to warn that its profits are falling, as it revealed a sharp rise in bad and doubtful debts at the end of 2008.
Delivering a quarterly trading statement – the first time it has felt compelled to since it was acquired by National Australia Bank (NAB) in 1987 – Glasgow-based Clydesdale said the proportion of its lending which is at least 90 days in arrears ha
d risen by two thirds to 1.64 per cent, in the three months to 31 December.
Clydesdale, part of the UK division of NAB which operates under the Yorkshire Bank brand in most of England, said while it remained profitable, it had been affected by "unprecedented market conditions".
It said in a statement: "The dislocation of the wholesale markets led to exceptionally high funding costs and, together with our conservative approach to liquidity and funding, had an inevitable consequence for bank profit".
Most of the increased arrears in lending are believed to have come from clients in its commercial and property portfolios.
In October Clydesdale reported a £1 million fall in pre-tax profits to £343m for the year to 30 September, crediting its simple banking model for its avoidance of the major problems which beset its larger UK rivals.
Yesterday chief executive Lynne Peacock said the bank was built "on very solid foundations". But she added: "Clearly we don't operate in isolation from the market or the tough trading environment."
Peacock said the bank would maintain a prudent approach, putting it in a position to grow when the market stabilises.
She continued: "The continued strength of our capital position, where no government support has been required, and an improved funding position particularly from 'flight to safety' deposit growth, serve to further illustrate our business resilience."
Clydesdale said it had continued to increase its depositor base, which increased by 5 per cent during the quarter.
It has also continued to grow its business lending, after claiming for months that it remains "open for business".
It is still approving nine out of ten applications for business lending, although it conceded that the rate of growth, which was 20 per cent in the year to 30 September, had slowed as customers trim back borrowing plans. Yesterday's statement came as NAB, Australia's largest lender, said that its first-quarter earnings had been flat at approximately AU$1.1 billion, (£501m) which it said was "a solid result in a challenging market environment".
Clydesdale's parent warned that the entire group had seen a rise in bad and doubtful debts, increasing by more than a quarter to 1.08 per cent, leading it to take a provision charge of $824m.
It did not say how much of the charge related to the UK business.
There has been speculation that NAB's new chief executive, Cameron Clyne, who has promised a full review of the bank's operations, may sell Clydesdale, which some analysts claim adds little to the group's market value.
Clydesdale was bought by Midland bank in 1919, which sold it to NAB in 1987. A spokesman said the first-quarter trading statement, the first of its kind, would be continued in line with its parent's quarterly updates.
