HBOS, Britain’s fifth-largest bank, said yesterday that it would not to be complacent about the competitive threat posed by the takeover of Abbey by Santander Central Hispano, Spain’s biggest bank.

James Crosby, chief executive of HBOS, said that it was too early to comment on the impact of the proposed merger, announced this week, but added: “We will not be making it easy for anyone.”

HBOS, which rivals Abbey in the savings and mortgage market, also played down the possibility that a British bidder would attempt to trump the offer from Santander.

Mr Crosby said: “You can safely say that there are a lot of investment bankers wandering around the City at the moment but investment bankers are miles ahead of reality.” He added that he believed that British banks would be prevented from bidding because of competition issues.

He also said that it was unlikely that a British bank would bid for Abbey to deliberately destabilise the Spanish offer by triggering a six-month Competition Commission inquiry.

HBOS announced that it had increased pre-tax profits in the first half of the year by 21 per cent to £2.16 billion, despite a slowdown in mortgage lending in the first six months.

Earlier this year Mr Crosby said that the bank, Britain’s biggest mortgage lender, was reining in all forms of lending because of rising interest rates. Net mortgage lending for the first half was £8.9 billion, compared with £11.4 billion for the same period last year.

Mr Crosby said that the bank was being prudent because of interest rate issues and dismissed fears of a housing crash, adding that the bank had already “detected some slowdown in the housing market”.

The bank’s share of Britain’s mortgage market has dropped from 25 per cent three years ago to 17 per cent in the first half. Despite the decision to curtail all types of lending, profits from corporate loans grew by 30 per cent to £667 million. Mr Crosby said that the bank had been involved in providing funding for many of the most recent high-profile deals, “some of which happened and some of which did not” — a reference to HBOS’s decision to back the attempt by Philip Green, the retail entrepreneur, to take over Marks & Spencer.

Total profits at HBOS’s retail division increased by 18 per cent to £972 million, despite the net interest margin — a key measure of profitability — falling to 1.82 per cent. At its insurance and investments division, which includes Insight, the fund manager, and Clerical Medical, the insurance company, profits increased slightly to £408 million. HBOS’s shares closed at 694p, a rise of 19p, as the bank raised its interim dividend by 5 per cent to 10.8p.