Abbey National has warned that the overall market for new and used car point-of-sale finance has fallen by 10% year-on-year and described the current performance of its First National retail and motor finance businesses as "disappointing".

Ian Harley, Abbey National chief executive, said assets in First National Motor Finance had fallen with an impact on profitability and "margins had not recovered as expected". But the bank policy of not competing "at the expense of credit quality" meant that default levels remained satisfactory.

"Trading conditions facing First National have worsened during the second half of the year," said Mr Harley. "The impact of reduced volumes and margins in the retail and motor finance businesses means current year profits before tax falling to around 60% of last year's levels."

Most of the impact will have been in used car loans. Dealer-based independent motor finance providers have been under pressure all year from increased promotional activity by carmakers own banks and from direct lenders, such as Alliance & Leicester. Dealers and finance providers hope the 2002 market will be stronger.