The UK's fifth largest bank Lloyds TSB saw H1 pretax profits grow by 4% from the year before to reach GBP1.78 billion.

The financial group – which includes the Scottish Widows investments and protection firm as well as the eponymous bank – said that its performance suffered from rising levels of defaults, with bad loan impairments growing to GBP800 million for the six months to June – a fifth higher than 2005.

Income at the company’s domestic retail banking arm grew by 3% while costs were reduced by the same amount, the firm said.

The insurance and investment division saw profits up 15% underpinned by strong profitable growth across the bancassurance and IFA distribution channels, while sales at the Scottish Widows life and pensions arm were up by 35%.

The deterioration in the unsecured consumer lending environment, particularly reflecting the changes to personal bankruptcy laws, which we highlighted earlier in the year, has led to an increase in our impairment charge, commented CEO Eric Daniels.

We are, however, expecting greater stability in the charge for retail impairments in the second half as the benefits of our tightened credit criteria show through. Unsecured consumer lending represents 12% of our customer lending and, given the corporate lending and mortgage portfolios remain of high quality, our overall credit quality remains satisfactory, he added.