HBOS said it had tightened its lending criteria

Some 60,000 employees will benefit from the windfall, which represents about 5% of annual salaries.

The announcement was made as the bank reported a 17% rise in half-year pre-tax profits to �2.65bn.

HBOS - formed after Halifax merged with Bank of Scotland in 2001 - also said it would lift its share buyback to �1bn.

It had originally said it was planning to buy back �750m of its shares.

HBOS said it had seen bad debts in its retail arm rise "in line with general trends in the sector".

Today's results show with real clarity organic growth is at the absolute core of what we're about Andy Hornby, chief executive, HBOS See HBOS share price

Like other banks - which have also been posting results in recent days - the firm has tightened criteria for lending to reduce bad debt.

The bank's results come a day after rival HSBC reported half-year profits of $12.5bn - as its chief executive, Michael Geoghegan told the Financial Times he was worried that people were being encouraged to file for bankruptcy rather than pay their debts.

New chief

HBOS's latest earnings come as Andy Hornby takes over at the helm of the firm.

At 38 years old, Mr Hornby is the youngest bank chief executive in Europe.

"Today's results show with real clarity organic growth is at the absolute core of what we're about," Mr Hornby told Reuters.

HBOS said in the UK it had "targeted growth selectively in markets where we see the most attractive prospects for sustainable growth" but that it was not overly dependent on any one product or line.

While retail sales, house prices and the economy "are all performing better than expected" making an interest rate rise likely, if rates do rise HBOS said it was unlikely to have much of an impact on its business.

The bank said that during the past six months it had seen a further 400,000 people open current accounts with the firm, a rise of 29% on the same period in 2005.