The UK's Nationwide Building Society said bad loans are likely to rise as pressure on household finances squeezes its customers, even as it reported profits ticking up from rising interest rates.
Nationwide's results come a day after Britain's budget forecasting office warned the country faces a record hit to living standards this year, as surging inflation erodes income.
In a bid to restore Britain's finances after the chaos caused by former prime minister Liz Truss's plans for sweeping tax cuts, Finance Minister Jeremy Hunt set out a budget to save 55 billion a year.
Nationwide's results showed the impact of this environment - the interest rate rises aimed at combating inflation have the effect of boosting banks' profits, while piling on costs for individuals in the form of higher mortgage payments.
Britain's second biggest provider of home loans said profit for the six months rose 13% to £969m from the same time a year ago, but said bad loans had risen and would continue to do so.
Nationwide said credit impairment charges rose to £108m from a net release of £34m set aside for potential loan losses in the first half of last year.
Customers were for the most part holding up for now cushioned by savings built up in recent years, but the cracks are starting to show for some, Nationwide chief executive Debbie Crosbie said.
"The transition to higher interest payments is a challenge for households as they adjust their expenditure priorities," Crosbie said.
Nationwide competes with Britain's big banks but unlike them is owned by its customers, and aims to deliver financial benefits to them over paying out excess profits to shareholders.
