MercoPress. South Atlantic News Agency

Soaring bad debts at Lloyds Banking Group but “worst is over”

The bank expects to begin gradually recovering in 2010

Lloyds Banking Group which has been partly nationalized by the British government blamed soaring bad debt charges of £13.4 billion on reckless lending at HBOS, but predicted the worst is over.

The 43% taxpayer-owned bank said HBOS accounted for 80% of the damage from toxic debts in the first half of the year, which was up from £2.5 billion last year.

However Lloyds’ shares rose around 14% at one point as the firm said it believed charges from loans turned sour had already peaked and would be lower in the next six months. The bank reported a loss of £4 billion for the first half of the year - smaller than analyst predictions of around £5 billion.

Lloyds has so far suffered around £20 billion in bad debt charges from HBOS over the last 18 months. The losses mainly relate to past risky lending on housing and commercial property in the Halifax bank's corporate lending division during the boom years.

Tumbling property prices and the recession have since pulled the rug from under these deals as households and businesses struggled. But Lloyds said it had revised its housing market estimates for this year to show a 7% fall, rather than the previously forecast 15% decline.

Group chief executive Eric Daniels confirmed previous statements that Lloyds would be loss-making in 2009, although the bank expects the economy to stabilise in the second half and gradually start recovering in 2010.

Lloyds rescued its rival HBOS at the peak of last year's banking crisis. But the hurried, Government-encouraged deal has since provoked outrage among shareholders concerned about the level of toxic assets now on its books.

Chairman Sir Victor Blank took much of the flak for the deal and resigned earlier this year. He will be replaced by Sir Win Bischoff in September.