HBOS says the credit situation has worsened
UK banking group HBOS has seen profits before tax fall 72% in the first six months of the year, amid a credit crisis and a tougher economic climate.
The firm said first-half profits dropped to £848m from £2.96bn in the same period a year earlier.
Bad debts rose 36% to £1.31bn as customers failed to repay loans.
But the firm, which recently completed a £4bn share sale, said it was better placed to operate in the "more challenging economic environment".
Despite the drop in profits, HBOS shares rose 7% in London, with analysts voicing cautious optimism about its earnings report. They closed 19.25 pence higher at 290.5p.
Robert Peston, the BBC's business editor, said the HBOS results might have sounded dreadful, but the drop in earnings was only slightly more than was reported on Wednesday by UK banking rival Lloyds TSB.
A day earlier Lloyds TSB said profits had fallen 70% to £599m, down from a profit of £1.99bn in first half of 2007 because of global market volatility.
Our correspondent said "probably the most worrying trend was an increase of £225m in charges on mortgages where the borrowers were having trouble keeping up with their repayments".
HBOS said the value of mortgages it classed as being impaired had risen 21% to £5.1bn.
Losses on loans and advances increased by 36% to £1.3bn in the first half.
The firm said the problems seen in UK and global financial markets during the first half of 2008 had evolved into a "wider economic slowdown" after access to funds had become more limited and more expensive.
HBOS, which was formed by the merger of Halifax and Bank of Scotland, said its underlying profits before tax including some accounting adjustments were down 51% at £1.45bn during the first six months of 2008.
Richard Hargreaves of Hargreaves Lansdown Stockbrokers said: "Concerns still linger in the form of the group's exposure to the UK environment and, in particular, the buy-to-let market in which Halifax is a major player."
"Further disposals of assets have not been ruled out of the price is right, and if the economic landscape deteriorates sufficiently."
HBOS recently launched a rights issue in a bid to improve its balance sheet, though the sale of shares was beset by problems.
The company's share price fell in the weeks prior to the rights issue, dropping below the planned sale price and denting demand for stock on offer.