FSA orders London Scottish Bank to increase reserves

by Gill Montia

Story link: FSA orders London Scottish Bank to increase reserves

The Financial Services Authority (FSA) has already taken action using new rules on the liquidity status of banks that became effective at the beginning of 2008.

London Scottish Bank (LSB), which specialises in personal loans and has approximately 220,000 customers, is the first London-listed bank to be ordered by the FSA to increase its reserves.

The bank has admitted that it will be forced write down £22 million in bad debt for the year to the end of October 2007 and expects to record an annual loss of up to £5 million.

LSB’s recently appointed chief executive, Robin Ashton, says that the difficulties have occurred because some low-income customers of its unsecured-credit business failed to make repayments.

Mr Ashton has denied that the bank’s problems are similar to those of Northern Rock because “LSB’s unsecured consumer credit business has been underperforming for some time” and apparently, some of the bad debts has not been properly accounted for.

He also believes the new capital requirements, known as Basle II, have compounded LSB’s problems.

The new regulations require banks across Europe to clear reserve levels with their national regulator.

LSB currently has a £13 million shortfall in its reserves and plans to raise capital either through a share issue or sale of assets.