Almost one-third of banks and over three-quarters of building societies predict a rise in bad loans in the first quarter of 2007, according to a survey from PricewaterhouseCoopers (PWC) with the CBI.

“We know there has been a problem with bad loans rising in 2006 and… one third of banks are still saying they think it will keep rising because of the level of [personal] insolvencies”, said John Hitchins, PWC UK banking leader.

He warned that the financial services industry had endured five successive quarters of growth in so-called ‘non-performing loans’ including credit cards.

Mr Hitchens described the number of IVAs as a source of “major concern” for the banking industry, with signs IVA arrangements are “being applied to the wrong type of people.”

“Traditionally the main reason for people defaulting on loans is divorce or unemployment”, he commented, adding – “but this time people are unable to pay their debts because they have simply borrowed too much.”

What Mr Hitchens calls it a “rise in customer delinquency” as was suggested last week when accountants Grant Thornton predicted that almost 30,000 Britons will become insolvent in the first quarter of 2007.

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