UK Banks Writing Off Record Levels of Bad Debt

Banks in the United Kingdom have written off record amounts of debt in the first half of 2007, spurred by a huge increase in credit card debt write-offs, according to statistics released yesterday by the Bank of England, the UK’s central bank.

For the first half of 2007, banks have written off $8.95 billion, the most ever for the first two quarters of a year. In the past four quarters, banks in the UK have written off $18 billion in bad debt.

In the second quarter, banks wrote-off $4.725 billion in bad debts, an 11.7 percent increase from the first quarter of 2007 and a 19.4 percent increase from the amount written off in the second quarter of 2006.

Consumer credit cards saw the most dramatic increase in write-offs in the second quarter. Banks wrote-off $1.64 billion in bad consumer credit card debt in the quarter, up 18.2 percent from the same period a year ago, but down 10.3 percent from the $1.81 billion written off in the first quarter of this year. The first quarter’s consumer credit card write-off total was an all-time record.

Consumer credit card write-offs have been steadily increasing in recent years. In the first quarter of 2004, banks wrote-off $769 million in consumer credit card bad debt. Since that quarter, the amount of credit card debt written off has increased every quarter, with only two minor exceptions.

The $4.725 billion in total debt written off by UK banks in the second quarter of 2007 was the third highest total ever reported for a quarter, behind the fourth quarters of both 2005 and 2006.

The Bank of England requires resident banks in the UK to submit write-off information, in addition to other statistics, on a quarterly basis, much like the Federal Deposit Insurance Corp. in the U.S.