Trend Towards Defaulting on Credit Cards to Hit High Street Banks

After being on shaky ground from the effects of so many bad home loans in the UK, high street banks are hearing from KPMG accounting firm that unsecured loans such as credit card loans may bring further losses right behind the huge hit they took from large numbers of home loans that were defaulted on in the past few years.

Even though investment banks are back on the path to profits, their retail arms are still not showing the profitability expected of them largely due to unemployment rates which affect whether or not people are able to repay their debts. This, in turn, will most likely mean higher interest rates and increased fees for those consumers who are seeking credit at this time and in the near future as banks attempt to restructure their services back to a more profitable situation.

Barclays, Lloyds Banking Group, Royal Bank of Scotland (RBS) and HSBC have all reported profits for the first six months of 2009 in their retail divisions, but the levels of bad debt are pinching those profit margins. Lloyds has announced that it believes the worst of the defaulting has already occurred in the first half of this year, with £2.2bn in bad debt, a 60% increase. After this, they expect the defaulting situation to calm back down to more normal levels.

From March to June 2009, over 11,000 homes in the UK were repossessed according to an announcement from the Council of Mortgage Lenders, a 14% increase from 2008.

All told, many citizens are expected to turn to Individual Voluntary Agreements, as opposed to bankruptcy in order to get themselves out of the debt worries brought on my these tight economic times.