Abbey surges as customers manage their money better

Nick Goodway
30.04.09

Abbey, the country's second-biggest mortgage lender and third-biggest home for savers, surprised the banking industry today by reporting a significant decline in the amount it put aside for bad debts in the first three months of the year.

The bank, which includes the whole of Alliance & Leicester and the good bits of Bradford & Bingley, said the improvement was due in no small part to people finding it easier to manage their finances and come up with sensible ways of rescheduling their debts in the new low-interest environment.

Abbey, which has two million mortgage customers, said provisions for bad debts fell from £234 million in the final quarter of last year to £189 million in the first three months of this one. That comes as most UK banks expect rising provisions as the recession bites.

Profits rose 25% to £372 million with A&L, which was bought for £1.3 billion last summer, and B&B, which was nationalised and the good bits sold to Abbey later in the year, contributing positively.

Chief executive Antonio Horta-Osorio emphasised that Abbey's prudent approach to business had served it well through the banking crisis. In the latest quarter it lent out £800 million, exactly the same amount of new money it took in from savers. In other words it did not have to make any extra demands on the wholesale money markets.

With its Spanish parent Santander faring better than many global banks Abbey is also in the unusual postion of not only having turned down any UK Government bailout but also not having made any use of special loan facilities, toxic asset guarantees or corporate bond underwriting offered by the Treasury and the Bank of England.

Horta-Osorio said: “This is an excellent performance delivered in the toughest of economic environments. Our overall mortgage book has a low loan-to-value of 52% and our new business lending continues to be based on affordability, robust risk management and a focus on credit quality. Our balalnce between lending and growth in deposits demonstrates that we continue to be seen as a safe and attractive home for UK savers.”

However, despite the lower bad loan provisions, Abbey admitted the number of people falling three months of more behind with their repayments is still rising. At the end of December there were 10,987 people in that potion and by the end of March that had risen to 13,400. But as a proportion of borrowers Abbey's 1.13% is barely half the Council of Mortgage Lenders' average which looks set to pass 2% this month.