UK retail banks struggling to return to profitability

Optimism gets mugged in the dark alley of reality. UK banks, especially the retail ones, are still in trouble.

LONDON (Reuters) - Britain's banks are likely to see their battered retail arms slide to a loss in the second half of 2009, as the cost of bad loans, tough competition and wholesale funding continues to weigh, a survey by accountants KPMG found.

"Retail banking is just profitable at lower levels, but with rising impairments. It seems probable that it will fall into loss making in the second half of this year," KMPG said in its UK Banks Performance Benchmarking Survey on Wednesday.

David Sayer, head of retail banking for KPMG's advisory practice, said he was "slightly pessimistic" about the second half, though banks' retail losses could reverse in early 2010.

"It's not a catastrophic shift, but if you are slightly pessimistic on house prices, if you believe there is a lagged effect on unemployment, and therefore you believe bad debts on credit cards and personal loans will rise, then you believe a marginal profit will become a marginal loss," he said.