Lloyds says it has tightened its criteria for lending

Pre-tax profits rose 4% to �1.78bn ($3.3bn) for the first half of the year, helped by strong cost controls.

But provisions to cover bad debts also rose. Across the group as a whole they climbed 20% to �800m, and at the UK retail business they rose 16% to �632m.

Lloyds TSB said the rise reflected more customers experiencing repayment problems and higher bankruptcy levels.

The bank added that it expected "greater stability" in impairment charges in the second half of the year after it tightened its lending criteria.

Lloyds said that in the first half of 2006, more than 99% of new personal loans and 80% of new credit cards were sold to existing customers, where the bank has a better idea of the customer's financial strength.

However, it added: "The rate of growth in the number of customers filing for bankruptcy and IVAs (Individual Voluntary Arrangements) does... remain a key factor in the outlook for retail impairment."

Improved sales mix

Income grew by 6% across the group as a whole, Lloyds said, while costs increased by just 1%.

In its UK retail banking business, income rose 3%, while it managed to cut costs by 3%. This helped the UK banking side to report a 2% rise in pre-tax profits to �713m.

Lloyds said the UK business had been helped by a better sales mix, with less unsecured lending and higher levels of mortgage lending and customer deposits.

Lloyds added that it had seen "excellent" growth at its Scottish Widows life assurance business, with a 35% rise in new business weighted sales and a 15% rise in pre-tax profits.