British bank HBOS which is being taken over by Lloyds TSB Group said bad debts and other charges jumped to £8 billion this year as corporate and home loans soured.
Britain's biggest home lender said the losses would hit its capital ratios, but it declined to say by how much, and said the outlook was grim.
In a statement ahead of a shareholder vote on its proposed takeover, it said the deterioration in credit quality had accelerated and estimated asset values have fallen sharply since November.
HBOS said charges for bad debts and losses on assets totalled £8 billion for the year to the end of November, up from £4.8 billion at the end of September.
Bad debts on corporate loans almost doubled to £3.3 billion from £1.7 billion. Losses on the unit's investment portfolio also rose, to £800 million from £100 million two months earlier.
Sharp declines in house prices and pressure on margins from interest rate cuts helped lift impairments on mortgages to £700 million from £400 million, the bank said. The unsecured impairment charge was £1 billion pounds, up from £800 million.
"In light of the worsening economic climate, trends in retail impairment charges are likely to come under further pressure," it said.
It added that pressure on net interest margins is building due to the recent cuts in UK base rates, which have been slashed to 2 per cent.
"However, through the injection of capital and liquidity facilitated by the UK government, both currently and going forward, HBOS remains confident in its ability to navigate through this difficult period, as it becomes part of the enlarged Lloyds Banking Group," it said.
Reuters