Profits at Barclaycard tumbled 75 per cent in the second half of last year as Barcleys, Britain’s third-biggest bank, was hit by borrowers claiming refunds for “unfair” credit card penalty fees.

Pretax profits from the division fell to just £77 million in the last six months of 2006, against £305 million in the preceding six months, following a ruling in March from the Office of Fair Trading that paved the way for credit card holders to claim back charges.

Barclays, whose Barclaycard offshoot has 9.8 million customers and is Britain’s oldest and biggest credit card issuer, would not quantify how much it had handed out to settle claims. However, it conceded that such payments were “one of the factors” behind the division’s collapse in profitability.

Last week, Moneysavingsexpert.com, one of three consumer websites that provide template letters for consumers to claim refunds, said that 20,000 forms were being printed from its site every day.

This week, it emerged that Barclays was exploring the sale of Monument, its “near-prime” credit card business, less than five years after buying it.

The performance of Barclaycard, which also reported a 36 per cent increase in bad debt charges to £1.49 billion, took the shine off yesterday’s full-year profits from its parent bank.

However, John Varley, Barclays’ chief executive, said that the division had seen a lower level of arrears in cards and unsecured loans, trends that “cause us to believe we have passed the worst in Barclaycard UK impairment in the second half of 2006”.

He also said the bank did not expect to make a provision against refunds in the current financial year.

The bank reported a 35 per cent rise in pretax profits to a record £7.14 billion, 2 per cent ahead of consensus forecasts.

Analysts were encouraged by a better than expected 17 per cent rise in profits from its UK retail banking operation, where it has been overhauling its branch network and simplifying its mortage approval procedures under Deanna Oppenheimer, who joined from Washington Mutual of the US two years ago.

As in previous years, the star performer was Barclays Capital, its debt-focused investment bank, where profits rose 55 per cent to £2.58 billion, and now account for 31 per cent of group earnings.

Simon Maughan, an analyst at Blue Oak Capital, said: “It is difficult to fault Barclays Capital. It is now right at the top table of investment banks.”

The bank sought to assuage concerns over the sustainability of Barclays Capital’s profits by saying that it expected annual growth of 15 to 20 per cent over the medium term.

Amid persistent speculation that Barclays is eyeing acquisitions in the US, Mr Varley repeated his view that Barclays’ expansion was not dependent on dealmaking. He said: “We do not rule out acquisitions, but our growth is not reliant on M&A activity.”

Yesterday’s numbers were accompanied by plans for Barclays to double the rate of investment in its international retail and commercial banking operations. This included a sharp increase in the rate of overseas branch openings, from 100 last year to 350 in 2007, focused on Spain, Portugal, Italy, the United Arab Emirates, India and sub-Saharan Africa.

The shares rose 3p to 784½p.

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