Bradford & Bingley (B&B), Britain’s biggest buy-to-let lender, remained coy yesterday about the possibility of a rights issue but insisted deposits were pouring in to fund its mortgage sales.

The bank was forced to deny recently that it was on the verge of an emergency rights issue.

Steven Crawshaw, B&B’s chief executive, said that he was keeping an open mind on how to cope with the volatile market. He did not rule out a rights issue at some time, but said that it was a misrepresentation of the issue to imply that B&B was desperate for cash. “In these times, you have to be very flexible. Markets can change very rapidly,” he said.

As the credit crunch took hold, B&B obtained a £2.5 billion credit line from other banks and in November sold two books of mortgages worth £4.2 billion. It announced another £2 billion funding line two months ago, which yesterday B&B said it had not yet drawn on.

According to Morgan Stanley analysts, the bank has a 7.7 per cent core Tier 1 equity ratio (the regulator’s key measure of financial strength), only 20 basis points below that of HSBC and above the sector average of 6.6 per cent. To maintain last year’s market share, the bank needs to sell £2.5 billion of mortgages. Mr Crawshaw said that B&B was funding its mortgage sales using new deposits and that it was sufficiently funded to maintain its business for at least 12 months.

Savers have poured £1.9 billion into B&B’s accounts since the start of the year. Lending slowed compared with the same period last year as the bank toughened its minimum credit conditions and lowered loan-to-value levels on its mortgages. Margins narrowed at the beginning of the year, partly because B&B was paying more for its own finance and also because it held a larger amount of liquidity in gilts.

B&B increased the cost of its mortgages in recent weeks, which should more than compensate for the higher cost of funding and result in wider margins over the rest of the year, Mr Crawshaw said.

B&B told the stock market last Friday that the proportion of its borrowers behind on mortgage payments had risen dramatically in the past month. It said that three-month arrears had risen from 1.5 per cent in March to 1.6 per cent in April, almost twice the rate at the end of December, when it was 0.9 per cent. Yesterday the bank said that its customers were feeling “payment strain” and that it had stepped up its debt collection processes. Mr Crawshaw attributed the rise in bad debts to “credit stress . . . It’s not people losing their jobs, landlords aren’t losing tenants. This is people who are struggling to fund their life-style.”

At its results in February B&B reported £94 million in writedowns and a £133 million fair value adjustment on its structured investments. Yesterday it revealed £38 million in further writedowns on structured investment vehicles and a £44 million downward adjustment on its synthetic collateralised debt obligations and collateralised loan obligations.

Analysts at Dresdner Kleinwort said that B&B was well-funded, but Keefe, Bruyette & Woods said that with almost £1 billion in remaining exposure to structured credit products, the possibility of a capital-raising could not be dismissed. Cattles is the latest UK lender set to raise funds, according to a report last night. The sub-prime loans specialist is today expected to make a cash call for £210 million to support its application for a banking licence. The FSA is understood to demand a healthier level of capital than Cattles possesses to grant such a licence.

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