Profits up at cautious Co-op Bank

SELF-PROCLAIMED ethical financier the Co-operative Bank warned there is a dangerous economic imbalance between the UK's struggling manufacturing sector and robust consumer demand.

Chief executive Mervyn Pedelty said this economic uncertainty and expectations of weaker credit conditions over the coming year had prompted it to adopt a more cautious lending policy.

'These (economic) imbalances are unlikely to be sustainable indefinitely and the timing of an economic recovery is particularly uncertain,' the bank said. 'The credit climate is likely to be weaker in 2002 than in recent years.'

However, the Co-operative's results have yet to show any sign of such a deterioration, as the bank reported an eighth consecutive rise in annual profits for 2001. Pre-tax profits rose 11.6% to £107.5m as the cost-income ratio came down from 63.6% to 61.9%. Average retail deposit balances rose 24% to £4.9bn while the comparative lending figure was 16% higher at £3.5bn.

The results also helped to allay fears about the potential consequences of soaring personal debts, the overall bad debt charge coming in at £66.2m, or 1.71% of the loan book, a fall 0.07 percentage points. The bad-debt charge for corporate loans rose from £3.9m to £5.1m. But the bank said there were 'no firm indications of an increasing trend in business failures'.

Pedelty said that internet bank Smile had 500,000 account holders and would hit its target of being profitable within two years. But he refused to reveal the extent of Smile's losses in the past year or say how much was invested in it.

The results came as the Co-operative prepares to release the results of its latest ethical research as part of its tenth anniversary celebration. The survey, which determines the bank's ethical policies, is expected to show customers do not want it dealing with businesses involved in genetically modified crops and human cloning.

But it is believed the bank will still be free to do business with companies that test products on animals for medical, though not cosmetic, purposes. Its policies prevent it from dealing with a range of other British businesses, including oil companies and those that make weapons used in countries which 'oppress the human spirit'.