Global banks bolster profits by raising rates in the UK

August 13th, 2008

British Banks, the target of so much respect and affection from this blog, have been criticised this week after revealing that despite the global credit crisis they have made £500 million more from British consumers this year than last year.

Despite making heavy losses in other markets gloabl banks have been able to mitigate this by raising rates in the UK. The figures from the banks’ half-year reports show that HSBC, Lloyds TSB, Royal Bank of Scotland, Barclays and HBOS made combined profits of £4.294 billion in 2008, compared to £3.808 billion in 2007.

HSBC’s UK profits soared by 85 per cent from £331 million in the first half of last year to £614 million this year. Royal Bank of Scotland has increased its profits from its UK business by 9.2 per cent. And yet the global company announced one of the biggest losses in banking history of £691 million just last week.

Banks freely admit that they are chasing margin rather than market share since the credit crunch hit, which is making mainstream mortgages profitable again. Before the onset of the credit crunch lenders complained that it was increasingly difficult to make a profit on mortgages because of the cut-throat competition which meant they had to slash rates to attract business. Now lenders are in the driving seat and able to improve margins and profits while borrowers struggle to adjust to higher rates.

Mortgage borrowers are not the only bank customers to be affected by banks increasing their margins. Those with accounts, credit cards and loans are also facing higher charges. Research shows that it costs a borrower almost £700 extra to take an average loan of £5,000 compared to six months ago, assuming they repay over five years. A three-year loan over three years costs an extra £239.51 compared to six months ago.

It is also a miserable time for credit card holders as soaring rates mean it now costs £60 more to spend £1,000 on the average credit card compared to six months ago. This is because the average credit card interest rate has hit 17.4 per cent up from 16.8 per cent since February this year.

Current account customers have also lost out, being hit with punitive interest charges on authorized overdrafts – an extra 0.36 per cent compared to six months ago on average.

RBS admitted that it is making more money from mortgages, saying: “We saw the opportunity of the first half of this year to write good quality mortgages and improve market share at attractive margins.”

I have had to hold back in my usual contempt for banks in this case. The mortgage market here in the UK was distorted beyond recognition before the crunch hit and higher prices are necessary to effect the correction.

However, I am under no illusions that the banks are following this course of action to bolster their own profits and not the UK economy. I shall follow this story with interest over the coming months and try to spot the exact point when sound financial management on the part of the banks becomes profiteering.

This entry was posted on Wednesday, August 13th, 2008 at 9:17 am and is filed under Personal Loans. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

Global banks bolster profits by raising rates in the UK

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