The rising wage bill at state-owned banks

If you're wondering why Lloyds Banking Group has been cutting headcount with increasing abandon, a new report into UK banks' 2009 performance by KPMG provides an interesting insight.

The firm's Performance Benchmarking Survey shows that following its acquisition of HBOS, staff costs at Lloyds have increased by 114.4% - to over 3bn - for the first half of 2009.

Meanwhile, RBS, which has hit the headlines recently for offering generous guaranteed bonuses to investment bankers, spent 8.1% more on its employees year on year, taking the figure to over 6bn.

Lloyds posted a 4bn loss for the first six months of the year, following a massive increase in impairments from bad HBOS loans, while RBS edged back into the black with a pre-tax profit of 15m.

Both banks still have a long way to go to reach their cost-cutting targets, and rather ominously KPMG is predicting the second half will be worse for the retail banking.

"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," it said.

KPMG said that the cost of bad loans combined with tough competition and wholesale funding will continue to weigh heavily in the second half.