The announcement led to a fall of nearly 10% in the bank's share price when the London markets opened.

Abbey National said profits would be hit mainly because it was writing off debts in its wholesale banking division, which deals with loans to companies.

Whilst acknowledging the importance of the issues that we are currently tackling, we remain confident about Abbey National's prospects

Ian Harley Abbey National chief executive

Last year Abbey National wrote-off a total of �256m in its business banking unit.

The bank said it would be writing off a similar amount for just the first six months of the current financial year.

But it said the second half of the year would be better.

Fewer loans

A spokesman for Abbey National told BBC News Online that some of the write-offs were for debts which had not been paid.

But he said the bank was being more aggressive about making provision for debts that it believed would remain unpaid in the future.

The difficult business climate has meant that many companies, for example in telecoms, have been unable to repay loans.

Abbey National said it would now be more cautious about lending money to businesses.

But its problems are not confined to business banking.

Homebuyers

Another reason for the warning about lower profits is that Abbey National has seen a fall-off in sales of its with-profits products because people are reluctant to invest in the stock market.

And it is expecting the lower level of sales to continue.

The bank has also decided to be wary about lending money to some home-buyers.

It said it was taking a more cautious approach to "certain high risk market segments."

These include first-time buyers, people who are buying to let and customers whose loans are above 90% of the value of their property.

The chief executive, Ian Harley, said in a statement: "The business fundamentals remain strong.

"Whilst acknowledging the importance of the issues that we are currently tackling, we remain confident about Abbey National's prospects," he added.

Abbey National shares recovered some ground by the end of the day, but still closed 79p lower at 928p.