THE Co-operative Bank has reported a significant increase in personal lending together with a reduction in its bad debt provisions.
The bank's interim results show that the charge for bad debts was down eight per cent, while average customer retail lending balances grew by 46 per cent.
The bank has actively developed its residential mortgage portfolio over the past year concentrating on quality first mortgage advances and, as a result, has developed a more secured balance sheet.
However, the level of asset growth achieved has inevitably resulted in significant up-front expenditure, which has produced a short-term drag on profitability. Consequently, the bank's pre-tax profit for the first half of 2004 was £ 70.1 million, compared with £ 75.3 million last year.
Operating income generated by the retail sector increased, driven by growth in both average customer deposit balances, which grew by £ 431 million to £ 6,476 million (seven per cent), and average retail customer lending balances, which grew at a faster rate, reaching £ 6,631 million, an increase of £ 2,088 million (46 per cent).
This was offset by lower wholesale income. Operating income increased from £ 270.9 million to £ 271.2 million.
Operating costs of £ 169.9 million were £ 8.3 million higher than last year, a rise of five per cent. The increase in costs arose primarily from additional costs associated with business development expenditure, regulatory compliance and higher staff costs.
These were in part offset by savings arising from the creation, in 2002, of Co-operative Financial Services, which brought the bank and Co-operative Insurance Society together.
Average staff numbers paid by the bank remained constant despite the expansion in business activity as increases in customer facing staff were offset by lower numbers of central support personnel.
Staff costs were £ 4.9 million higher than last year due to the annual pay award and higher pension costs. In April, the bank announced that it was making a one-off payment of £ 14.4 million to help address a shortfall in its defined benefit pension scheme.
Deposits at smile, the bank's internet operation, which continues to receive accolades from customers and pundits alike, grew by nine per cent.
Chief Executive Mervyn Pedelty said: `Over recent years we have established a formula which demonstrates that ethics and profits can go hand in hand.
`I am delighted that we have achieved significant growth in lending, without having to compromise on our strategy of being a responsible lender. We have deliberately avoided the high loan-to-value sector of the mortgage market and at the end of the first half of 2004, the bank's average loan-to-value for mortgages was just 53 per cent.`