Halifax-to-Bank of Scotland group HBOS delivered interim profits in line with expectations today as it pointed to a "strong outcome for the full year".

The group posted underlying profits of £2.24 billion in the first six months of 2004, a rise of 22% after achieving growth in all its divisions.

In its core retail business, HBOS said profits rose by 18% to £972 million, despite its share of the mortgage market falling to 17% from 25% a year earlier as it tightened lending criteria in the current interest rate climate.

HBOS said the recent increases in the cost of borrowing were beginning to have an impact on housing activity but the company also pointed out that rates were still likely to peak at historically low levels.

The UK's biggest mortgage lender added in today's half-year results: "We continue to expect only a modest deterioration in our retail credit experience."

HBOS said it opened 560,000 new bank accounts during the period - giving it 25% of the new and switchers market - while it claimed a similar share in credit cards with 770,000 customers.

Taken together, savings and credit balances in bank accounts increased by £6.1 billion, compared with £6 billion a year earlier.

As expected, HBOS said its net interest margin - a key measure of profitability - fell to 1.68% from 1.72% in the second half of 2003 as the cost of borrowing for its own lending purposes increased.

Prior to the half-year figures today, the City expected underlying profits of around £4.5 billion for 2004 - up from £3.77 billion a year earlier.

Chief executive James Crosby said: "These results point clearly to a strong outcome for the full year. UK financial services remains an attractive and growing market.

"We believe that our focus on simplicity and value for money, a unique multi-brand strategy and the enduring credentials of our corporate bankers will continue to deliver good growth."

Wednesday July 28, 2004