BANKS and building societies have warned that the burden of bad loans is set to soar in the new year as borrowers struggle to meet debts made worse over the Christmas period.
Just a few weeks ago a number of banks, including HBoS and Bradford & Bingley, said they expected losses from bad loans to be less than first forecast.
But in a CBI survey published today, 30 per cent of banks and 78 per cent of building societie
s said the first three months of the new year would see an increase in the number of bad loans.
And most said they also expected the volume of new loan approvals to drop off over the same period.
John Hitchins, UK banking leader at PricewaterhouseCoopers, which carried out the survey for the CBI, said: "We know there has been a problem with bad loans rising in 2006 and, while the majority think they have hit the peak, one third of banks are still saying they think it will keep rising because of the level of [personal] insolvencies."
He added that the financial services industry had seen five quarters of growth in non-performing loans - most in unsecured lending such as credit cards ad personal loans.
He said: "The problem is likely to get worse. Traditionally, the main reason for people defaulting on loans is divorce or unemployment, but this time, people are unable to pay their debts because they have simply borrowed too much."
