Barclays cuts back risky lending after £228m hit from UK mortgage firm MFS

Barclays is pulling back from lending to risky borrowers, as its chief executive warned of increasing numbers of fraud cases and the bank took a £228m hit from the failure of a mortgage lender.

The mortgage lender Market Financial Solutions (MFS) collapsed in February amid allegations of fraud and the UK’s financial regulator has since launched an investigation into the scandal.

Barclays provided banking services to MFS and said the £228m hit had pushed total credit impairment charges to £823m in the first three months of 2026, up from £643m a year earlier.

Last year, the British bank reported a £110m loss over the US sub-prime auto lender Tricolor, which collapsed amid fraud allegations.

The chief executive, CS Venkatakrishnan, said: “This [alleged] fraud, as with the one in Tricolor, indicates to us the importance of strong financial controls at borrowers and the difficulty ex-ante of identifying fraud.

“As such, we are constraining lending to certain structured finance counterparties who operate more vulnerable business models and cannot convince us of the quality and independence of their financial controls.”

Losses stemming from the collapse of MFS, Tricolor and the US auto parts company First Brands (with allegations of fraud or mismanagement in all three cases) have raised fears over lending standards in the $2tn private credit industry, which has come under greater scrutiny from regulators. There are concerns that the fallout could destabilise traditional banks that issue loans to the shadow banking sector.

Andrew Bailey, the governor of the Bank of England and chair of the Financial Stability Board, has described it as a “relatively opaque world” and stressed the need for transparency and solid stress testing, because otherwise people might lose faith in the financial system as a whole.

Venkatakrishnan added: “These things will only continue to increase in frequency … so it is important to have strong defences,” he added. “The incidence of fraud depends on the weakness of the economic cycle, because if you’re operating a more vulnerable business model, your, incentive structure changes, if the market becomes weak.”

Barclays also set aside a further £105m for compensating customers in the UK’s , increasing its provision to £430m. Its pre-tax profit in the first quarter rose 3% to £2.8bn, with revenues up 6% at £8.2bn.