Bradford and Bingley building society is back in the news once again. The lender, which was nationalised last year by the government due to its bad debts through “toxic” loans, has just announced more bad news on its secured loan book.

According to the latest figures, somewhere in the region of one in twenty homeowner loans and buy to let loans with the lender are now in a default situation and it is thought that this situation is likely to become even worse, with more borrowers building up large amounts of arrears on their loans.

Bradford and Bingley has had a high percentage of buy to let loans and adverse credit loans on its books in recent years, both of which are now considered to be areas of high risk when it comes to lending and it would appear that the problems of bad lending decisions in the past are making their presence felt, with around 5 per cent of all loans in default.

Bradford & Bingley’s chairman, Richard Pym, had announced recently that the number of borrowers who had three months or more arrears on their loan, had doubled from 2007 to March this year with the figure reaching 4.6 per cent of all loans with the society. He added “it’s now above 5 per cent and it will continue to deteriorate for the remainder of the year.”

The government bought out Bradford and Bingley’s homeowner loan book last year, with the Spanish bank Santander taking over the more profitable savings element of the society. Last week, Santander announced that the name of Bradford And Bingley would disappear from the high street altogether by the end of next year, with all its remaining branches being rebranded as Santander.

Since the onset of the credit crunch, it has become extremely difficult for anyone looking for additional finance to be able to obtain the loan they require, at least at reasonable interest rates, even if the applicant has a perfect credit rating.

But for someone with a poor credit rating, or problems in their financial history, in many cases it has become almost impossible to obtain a loan, due to the fact that almost all the subprime lenders who offer bad credit loans have been forced to withdraw from the market place in the current economic climate. As a result of this, more and more individuals who have become desperate for funding have turned to loan sharks to meet their needs.

The New Local Government Network (NLGN) has now become concerned at the increasing number of people who are turning to loan sharks, who often charge extortionate rates of interest to borrowers, as they cannot get a loan through more traditional lending routes.

The NLGN believe that there are somewhere in the region of 200,000 individuals in the UK who could be vulnerable and fall victim to loan sharks and they have called on local authorities to provide additional help to this sector of the community by increasing the availability of credit unions and council banks, as well as taking enforcement action against known loan sharks in order to provide additional protection to some of the most vulnerable members of the community.

Chris Leslie, who has written the report and has highlighted the need for action said “Local government has historically been at the forefront of new service provision where community needs exist and have the advantage of proximity to their front line and prime local knowledge. Further intervention from local government is a crucial step and we look forward to strong leadership from the sector at a time of great urgency.”

One of the most high profile bank bail out schemes from the government recently has been that of the Bradford and Bingley building society. Whilst the savings division of the society was sold off to the Spanish bank Santander, the UK Treasury and British taxpayer were responsible for looking after the bad credit loans which were held on the society’s loan book, many of which were buy to let homeowner loans.

The now nationalised Bradford and Bingley has just released its full accounts for last year and although the company made an overall profit of £134.3 million before tax over the course of 2008, up from £126 million in 2007, it was also revealed that the society wrote off debts from bad loans with a total value of £508 million and it is expected that this figure is likely to get worse as a large proportion of loan arrears have not yet been fully accounted for and will only show up in later tax periods.

The results show that Bradford and Bingley’s total outstanding balance of all its existing loans is currently in arrears of 0.27 per cent for 2008 and on a case by case basis,  4.6 per cent of individual loans are in arrears, or facing repossession proceedings, compared with only 1.64 per cent in the previous year.

In a statement regarding the level of profit, the bank said that this “Reflects two factors which were a direct consequence of the transfer: the sale of he bank’s deposit business to Abbey resulted in a gain of £216.3 million; and the benefit to net interest of the replacement of retail deposits with statuary debt, net of the cost of the guarantees provided by HM Treasury following the transfer, increased income by £115 million.”

Yet another small building society has gone to the wall as a direct result of the credit crunch and large losses on bad credit loans.

It was announced over the weekend by the government that the Dunfermline building society was to be put up for sale, as it was on the verge of collapsing, following losses of around £26 million. The sale itself was forced by the Financial Services Authority (FSA), the Bank of England and the Treasury, following the announcement of the losses.

Although the government have provided loans to a number of banks and building societies over the course of the past eighteen months or so, the Treasury has said that it is not prepared to provide funding for the Dunfermline, as the society would require a government loan of around £100 million in order to bail it out.

However, the government has said that it will take responsibility for around £1 billion worth of commercial loans and homeowner loans which are currently on the society’s loan books, which should not have any effect on anybody who already has an existing loan with the company. Speculation was raised over the course of the weekend about a likely potential buyer for the Dunfermline and just this morning (Monday 30th March) it was confirmed that the Nationwide building society would step in and buy out the society.

The Dunfermline building society was founded in 1869 and currently has a total of 34 branches, which employ 530 full time staff between them. It is expected that the Nationwide will take on the Dunfermline as a going concern, retaining all of the branches and finding new jobs for the existing employees, although this has not yet been confirmed. It is also not known whether or not the name Dunfermline will remain, or whether the branches will be rebranded as Nationwide.

A large number of companies in the finance and loan business have seen their profits decline drastically over the course of the last year, due to the current economic slowdown and a general lack of funds within the banking and finance sector for companies to be able to offer loans to potential borrowers.

One loan company however, has bucked this trend. Provident Financial, the doorstep lender which offers personal unsecured loans to individuals in the non standard market, who would probably be unable to obtain a loan from traditional sources such as banks, has seen their profits increase to £128.8 million for 2008, an increase of 11.8 per cent over the previous year.

Peter Crook of Provident Financial said “Despite operating in an increasingly underserved market where demand for our product is high, we have deliberately constrained customer growth to levels which are consistent with lending responsibly in the current environment as well as maintaining the appropriate balance between growth, credit quality and collections capacity. We maintain a uniquely close contact with our customers to ensure that we remain in touch with their current circumstances and can respond quickly to any changes.”

Meanwhile, Cattles, the parent company of Welcome Finance, which until recently, operated in the bad credit loan market for secured loans, has delayed announcing its financial results, due to finding accounting errors in its impairment provisions.

Three directors of Welcome Finance have been suspended whilst an inquiry takes place, but Cattles has issued a profits warning and expects its figures to be “substantially lower” than previous years. Welcome Finance had been one of the largest providers of secured loans in the adverse credit sector of the loan market, until it withdrew from offering new loans last year, due to a lack of funding.