Rising Bad Debt Prompts HSBC to Ponder Charing Credit-Scoring Data

By Peter Thal Larsen and Paul J Davies, Financial Times

When HSBC bought Household International three years ago, it was quick to trumpet the opportunities for exporting the US sub-prime lender’s advanced credit-scoring techniques around the rest of the world. In the UK, however, that is proving harder than expected.

Monday’s results from the global bank were marked by a sharp rise in bad-debt provisions in its UK consumer operation, which includes the retail bank as well as Household’s UK lending business.

Although HSBC does not break out the absolute figures, it said provisions as a proportion of risk-weighted assets had increased to 1.47 per cent, from 0.98 per cent in the first half of last year.

As a result, pre-tax profit in HSBC’s consumer operations fell to £363m in the six months to the end of June, down from £417m in the same period of last year. However, improved profit in commercial banking meant profit in the UK bank was up 9 per cent to £802m.

Almost all the increase in bad debts came from credit cards and unsecured personal loans – traditionally the first areas of lending to show signs of trouble when the economy contracts.

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