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Sunday, 21 February 2010

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Barclaycard writes off Euro 1.8bn in debts

Bad debts at Britain's biggest credit card provider have soared by nearly two thirds to Euro 1.8 billion as record numbers of shoppers went bust.

The amount Barclaycard said it has written off climbed 64 per cent during last year, it said. Industry analysts believe the total UK credit card debt written off this year could reach Euro 5 billion as the plastic spending bubble bursts.

Barclaycard have written off a staggering Euro 1.8bn in debts.

The increase in bad debt has been seized by the banks to justify a move to raise card interest rates to the highest level in 12 years.

The current average figure is 18.8 per cent, despite the fact the Bank of England base rate is at a 300-year low of just 0.5 per cent.

The amount Barclaycard has written off has climbed by 64 per cent.

The banks the high rates are needed to reflect the fact customers are considered a greater risk given the recession and high unemployment figures.

Personal insolvencies hit a record high of 134,142 last year - 27,000 ahead of the previous record in 2006. Banks and other credit card firms fuelled the spending bubble over the past decade. Cards were handed out without proper checks on customers' ability to pay. Spending limits were raised without customer requests, while expensive credit card cheques were distributed like confetti.

The combination of this reckless lending and a 'spend now pay later' attitude among shoppers has left the country owing more than Euro 54 billion on credit cards.

Barclaycard has 10.4 million UK card customers and 10.8 million in the U.S., Europe and Africa - with outstanding credit card balances totalling Euro 20.5 billion.

Overall, pre-tax profits at Barclaycard fell by 4 per cent to Euro 761 million, as the losses on bad debts offset increased lending levels and improved margins.

The steep jump in bad debts was partly driven by higher default rates on its Barclaycard loans.

It was also pushed up by the inclusion of Goldfish credit cards, which it bought in 2008. Barclaycard, owned by Barclays plc, was the first credit card introduced in the UK, coming into service in 1966.

 

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