High street bank Lloyds TSB reported a record 12 per cent leap in half-year profits.

In the six months to June 30 the bank said profits before tax had risen to £2.07 billion, up from £1.86 billion in the same period last year.

Profits from Lloyds UK financial operations were up 17 per cent to £1.43 billion from £1.22 billion in the first half of 1999 despite stiff competition in the sector from other high-street banks and from new internet banks.

Group chief executive Peter Ellwood said the arrival of the internet meant banks were at a crossroads.

"The financial services sector in the UK, as in many other parts of the world, is at a watershed created by a rapid change in technology, principally driven by the internet, a dramatic increase in competition and the increasing requirements of customers," he said.

Lloyds saw profits at its network of UK banks rise by six per cent to £391 million, although an increased investment in internet banking increased costs by five per cent.

Lloyds added that it now had the largest telephone banking network in the UK, with 1.8 million customers and 500,000 internet customers, expected to rise to one million by the end of the year, giving the bank an estimated market share of 20 per cent.

The period also saw the first contribution from insurer Scottish Widows, which Lloyds bought last year for £7 billion. In the six months, Scottish Widows contributed profits of £70 million to the business, although Lloyds spent £15 million integrating the business.

Stiff competition in the mortgage market led to lower profits in the period, down four per cent, or by £16 million, to £429 million.

But Lloyds said these profits were still higher than those seen in the second half of 1999.

The interim dividend to be paid to shareholders will be 9.3p, up 15 per cent from last time's 8.1p.