HBOS profits down 51 per cent

Halifax Bank of Scotland today said a £1.1 billion hit from the credit crunch saw profits more than halve in the first six months of the year.

HBOS reported underlying interim pre-tax profits down 51 per cent at £1.45 billion, against £2.96 billion last year.

The banking giant also said it suffered a 36 per cent leap in bad debts to £1.31 billion in the first half as hard-pressed customers struggled with repayments.

HBOS - owner of Britain's biggest mortgage lender Halifax - said its share of new mortgage lending fell from 22 per cent at the end of December to 7 per cent after it pledged to put margins before volumes.

It has repriced new and existing products in order to offset higher funding costs in crippled wholesale money markets.

Around a third of its mortgage portfolio will be repriced this year, said the group.

Earlier this week it emerged that Abbey had overtaken HBOS as the largest lender of new mortgages, with a half-year market share of 26 per cent, while Cheltenham & Gloucester, which is owned by Lloyds TSB, now ranks second with a 24 per cent share.

Underlying pre-tax profits at HBOS's retail banking arm dropped 5 per cent to £992 million.

HBOS reported rising numbers of borrower defaults and warned of higher arrears to come amid the economic slowdown and an expected 15 per cent to 20 per cent fall in house prices over this year and next.

Arrears levels - for borrowers three months or more behind with repayments - rose to 1.95 per cent from 1.67 per cent at the end of last year.

But HBOS said recent moves to bolster the business - including its now completed £4 billion rights issue - would help the bank weather troubles in the sector and wider economy.

Andy Hornby, chief executive of HBOS, said: "The first half of 2008 has seen the dislocation in financial markets evolve into a wider economic slowdown.

"Recognising the importance of strong capital to the HBOS core customer proposition, we have now completed our £4 billion rights issue, rebasing the group to stronger capital ratios.

"We are repricing both new and existing business, to deliver margin stability and the group is now well positioned to operate in the more challenging economic environment."