Banking sector back in the black with £8bn profits

The once-beleaguered banking sector is set to show a major swing back to the black, with taxpayer-backed Royal Bank of Scotland and Lloyds Banking Group expected to show a sustained recovery and falling bad debts.

This week's flurry of half-year figures from HSBC, RBS, Lloyds and Barclays is expected to confirm the worst of the banking crisis is over.

HSBC reports today and UBS analysts expect the group to set the tone with profits of around 5.5bn.

Lloyds – 41 per cent owned by the State – is forecast to report 800m in profits marking a mammoth turnaround on the 4bn losses seen a year earlier. Lloyds, headed by chief executive Eric Daniels, was brought to its knees by the disastrous acquisition of Halifax Bank of Scotland, which came saddled with bad property loans.

It is thought plunging bad debt levels could also see 83 per cent Government-owned RBS post interim profits of around 200m ending a two-year run of multi-billion pound losses.

RBS is also believed to be close to sealing the sale of 318 branches to Spanish bank Santander, which is expected to submit a final offer of between 1.7bn and 1.8bn. RBS is being forced to sell the Williams & Glyn's-branded network to appease European competition rules in return for state aid.

Santander, which bought Alliance & Leicester, Abbey, and Bradford & Bingley's retail network, last week kicked-off the banks' reporting season by revealing pre-tax profits rose 10 per cent to 875m in the first six months of the year.

Profits of around 3bn are expected from Barclays, up from 2.4bn year earlier.

However, Barclays and its competitors are predicted to see trading revenues hit in the second quarter as a result of volatile stock market conditions since the spring.

The dramatic turnaround at Lloyds and RBS is likely to push Government shareholdings back into positive territory. Banks have benefited from the recovering economy and record low interest rates, which has made it easier for home owners to meet mortgage payments. Provisions for bad debts are likely to fall.

Taxpayer-owned Northern Rock is also due to report results tomorrow, and is expected to show a profit.

Yorkshire's Bradford & Bingley, also state-owned, last week reported pre-tax profits of 79.4m in the six months to June 30.