'Minimal reaction' to bank charges

FIRST DIRECT reported a reduction in bad debts yesterday and said it had seen little damage to business following its decision to end free banking for current account customers who pay in less than £1,500 a month.
Leeds-based First Direct, the UK telephone and internet banking division of HSBC, will become the first bank to introduce charges. Consumer campaigners have described the move as the first step towards the end of free banking in the UK. But First Direct claims that 85 per cent of its customers will be unaffected by the £10 a month charge and the move is aimed at dormant or rarely used accounts. Speaking at parent company HSBC's annual results yesterday, First Direct chief executive Chris Pilling said a very small percentage of customers had closed their accounts. "It's really aimed at people who weren't using us as their main bank or whose account was dormant. We've lost less than 5 per cent of our customers, yet we have seen a very encouraging move towards customers taking out other products such as savings accounts, credit cards, mortgages, loans and ISAs because they want to stay with us," he said.
Customers who get paid or keep a balance of less than £1,500 a month won't be charged as long as they take on another First Direct service such as a savings account or a loan. Yesterday HSBC's UK banking operation reported a 3 per cent reduction in bad debts to £796m in 2006 and Mr Pilling said that First Direct's bad debts were at a similar level. "That's thanks to better systems and more analytical data. "We are blessed with a more affluent customer base and while we're not immune to trends we have seen a good performance in challenging markets," he said. In the UK, HSBC saw a 13 per cent increase in pre-tax profits to £1.87bn. The bank is to tighten lending requirements and expects to increase its refusal rates from 20 per cent to 30 per cent, although First Direct has no plans to follow suit. Mr Pilling said the recent interest rate increases had affected the business. "People are sensitive to rate hikes, there is a sense of conservatism – people are taking more care of their money. We expect our ISA product to do very well," he said. HSBC, Europe's biggest bank, reported a 5 per cent increase in profits to £11.48bn yesterday, but was hit by an increase in bad debts at its US mortgages operation. The bank took a £5.49bn hit for bad debts as a result of rising numbers of US borrowers defaulting on their mortgages. The head of HSBC's US division, Bobby Mehta, resigned two weeks ago. The group said it was confident the problems would not spread to other parts of the world. First Direct, which employs 2,700 people at Stourton, Leeds, hired 500 people last year and it intends to take on a further 300 staff this year. "We've got one of the lowest levels of colleague churn in Yorkshire call centres. It's about 10 per cent whereas most companies are seeing a loss of around 30-35 per cent. The culture is exceptionally good, for example we have the largest work creche in Britain. "We have a lot of young working mums and it means a lot to them to know their children are close by," said Mr Pilling.