Mr Crosby says he is not asking for a blank cheque

"We are not asking for a blank cheque, we are setting a new return on equity target," said chief executive James Crosby.

HBOS said it aimed to achieve a 20% return on equity by 2004, up from 18.2% for 2000 and 18.7% this time.

Market share

HBOS has established itself as a banking major with a 31% share of net mortgage lending in the UK.

In 2001, HBOS's net new lending to house buyers reached �17bn, up from �6bn in 2000.

The bank said the growth has continued so far this year, with "significantly increased volumes of mortgage lending, well ahead of target, with a pipeline 50% higher than the same period for 2001."

Reporting strong growth across the retail banking universe, the bank said it would need to inject �600m in fresh capital to capture "the expected opportunities for substantial growth".

The retail division suffered a 10% fall in profits, but the bank described this as "short-term margin pain", endured until its post-merger pricing mechanism were updated.

Insurance and investment

Sales by HBOS's insurance and investment division grew 55% last year, sending profits 30% higher.

This division will also need �600m in fresh capital "to sustain current volumes and to support the planned growth of new business," the bank said.

Proposed regulatory changes that will allow banks to sell financial products other than their own, the so-called changes on polarisation, should fuel sales and profit growth in this area, the bank predicted.

Profits from HBOS's corporate banking division rose 37% in 2001.

"This is a business that set itself an enormous number of targets for 2001 and we have achieved them all," said Mr Crosby.