HBOS is upbeat about the UK economy's prospects

The bank said that while bad debts have risen in recent months, interest rates "appear to have peaked" and employment prospects "remain strong".

HBOS chief James Crosby said the bank only expected "a moderate deterioration in retail credit conditions".

Mr Crosby added that the outlook for the UK economy remained "encouraging".

The bank said that it had lost �753m covering bad debts during the first six months of the year, against �602m a year ago.

Buyback expands

However, it added that while bad debts had risen on its retail banking side, this was partly offset by improvements in its corporate business.

Profits at the corporate division rose by 29% to �757m and the bank said deposits were growing "strongly" at a rate of 16%.

Impairments have been very much in line with our expectations. James Crosby, HBOS chief executive See the HBOS share price

Customers opened 311,000 new bank accounts and 429,000 credit card accounts within its High Street division, where underlying profits rose 8% to �1bn.

HBOS also announced that it was to increase its share buyback this year to �1bn, up from a previously planned �750m.

Mr Crosby said the bank would even consider a similar buyback next year.

"If the analysis that we did at the end of last year that led to this year's buyback programme is the same at the end of this year... I wouldn't be surprised if we came to the same conclusion," he said.

Commenting on the bad debt figures he added: "Impairments have been very much in line with our expectations. This will continue in retail terms to be a very benign credit cycle."

HBOS was formed by the merger of Halifax and Bank of Scotland in 2001. The banking group employs about 70,000 staff, with 67,000 based in the UK.