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Pre-tax profit at Lloyds TSB fell 70 per cent in the first half due to further write downs and market volatility.

The bank posted profits of £599 million for the six months to June 30th from £1.99 billion last year.

The lender said the impact of the credit crunch cost £585 million in the first half, as Lloyds TSB wrote down more asset-backed securities.

Lloyds TSB has also been affected by the decline in property prices, with losses increasing four per cent in retail banking to £655 million.

However, the bank said it had no direct exposure to US sub-prime assets and its capitalisation position was strong.

Chairman Sir Victor Blank said: "The first half of 2008 has been a period of considerable turbulence for the financial services sector and this has been compounded by the marked slowdown in the UK economy as a whole.

"Against this backdrop, Lloyds TSB continued to deliver good growth momentum in all its core businesses and is well positioned for a lower growth environment."

Customer deposits increased by 12 per cent to £162 billion, supported by strong growth in savings balances in the retail bank, where bank savings increased by 19 per cent and wealth management balances by 25 per cent.

The rise in savings supports figures released by the Building Society Association yesterday, which showed a record rise in savings following the credit crunch as borrowing fell.

The bank said it is prepared for a more severe economic downturn, warning "recent events" make this scenario more likely.