HBoS reveals profits fall of 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.

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

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

HBOS said its share of new mortgage lending fell from 22% at the end of December to 7% 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%, while Cheltenham & Gloucester, which is owned by Lloyds TSB, now ranks second with a 24% share.

Underlying pre-tax profits at HBOS's retail banking arm dropped 5% 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% to 20% fall in house prices over this year and next.

Arrears levels – for borrowers three months or more behind with repayments – rose to 1.95% from 1.67% 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."