Bank of Scotland chief hits at ERM workings

THE governor of Bank of Scotland, Bruce Pattullo, yesterday criticised the way the European Exchange Rate Mechanism had been operated over the past few weeks, but said that lower UK interest rates might help bank customers and bank profitability.

Without pointing a finger at any government, Mr Pattullo said of the ERM: 'If not modified over time to reflect major extraneous events and divergent economic trends, (the ERM rules) create rigidities which may then carry the seeds of their own destruction.'

His remarks accompanied his announcement that Bank of Scotland made pre-tax profits for the half year to 31 August of pounds 74.2m, little changed from pounds 75.7m a year ago.

Provisions for bad and doubtful debts increased to pounds 137.8m compared with pounds 120.5m, and expenses rose 12 per cent to pounds 250.2m. The interim dividend was raised by 4.1 per cent to 1.77p.

Hugh Young, general manager and secretary, said the bank was disappointed with its performance. 'But profit before tax is not down, the dividend is up 4 per cent which beats inflation and shows confidence, and assets are up 12 per cent on a year ago.'

The shares dipped initially, but finished up 1p at 114p.

The results also carried a gloomy assessment of economic conditions: 'Scotland and the North of England are part of the same UK economy, and weaker order books and reducing turnover and margins are becoming more widespread.'

On the positive side, operating profits before provisions were at a record pounds 207m (pounds 201m).

Bank of Scotland has benefited from some UK banks' withdrawal from corporate lending, which has resulted in improved profit margins in that business. Average sterling lending grew by 7 per cent in the six months.

Bank of Scotland's finance house, NWS Bank, increased pre- tax profits to pounds 32m from pounds 24m a year ago, up 34 per cent.

British Linen Bank, which focuses on lending to medium-sized companies including property firms, made pre-tax profits of pounds 600,000, less than the pounds 1.5m a year ago but a move back into the black after an pounds 8.9m loss in the year ending February 1992.