Lloyds corporate bad debts rising

Part-nationalised lender Lloyds Banking Group said bad debts on corporate loans were rising significantly as the economy deteriorated and it reiterated it expected to make a loss in 2009.

Lloyds, which has suffered billions of pounds of losses from the portfolio of HBOS, the troubled lender it bought earlier this year, said on Thursday it expected further corporate defaults in 2009, notably in the commercial real estate portfolios in Britain and Ireland.

"As a result, corporate impairments in 2009 are expected to be more than 50 per cent higher than in 2008," the bank said in a trading update.

By 8.20 a.m. Lloyds shares were down 3.5 per cent at 109.2 pence, underperforming a 2.7 per cent rise by the broader European bank sector.

Lloyds also said it continued to expect retail impairment levels to rise significantly this year. It said the "vast majority" of corporate assets forecast to run into trouble will be covered by its participation in a government-backed asset insurance plan. It plans to put £260 billion of assets in the scheme, but is still discussing details with the government.

The bank said it had delivered a good revenue performance in the first quarter and said it had already achieved significant cost synergies and was confident of delivering more than 1.5 billion pounds per annum by the end of 2011.

"While we continue to expect difficult economic conditions to prevail over the next year or so, we believe the strengthened group will be able to comfortably manage through the expected near-term economic downturn and focus on enhancing the group's prospects for long-term growth," chief executive officer Eric Daniels said in a statement.