Tesco plans an assault on Britain's crisis-ridden banking industry by offering mortgages and current accounts to shoppers for the first time.

The supermarket giant, which defied the doom and gloom on the high street yesterday with half-year pre-tax profits of £1.4 billion, said that its brand stood out as a safe haven for consumers worried about the safety of their money.

Tesco set up Tesco Personal Finance, a joint venture with Royal Bank of Scotland (RBS), 11 years ago and offers a range of products from car insurance to credit cards. It bought out RBS in July for £950 million and took full control. Sir Terry Leahy, Tesco's chief executive, called the deal a “timely move” and said that the economic downturn offered an excellent opportunity for Tesco to make huge strides as a fully fledged retail bank. Last week, about 1,000 people applied to open Tesco deposit accounts - more than double the number of applications that it receives in an average week - as the financial storm on world markets pushed HBOS and Bradford & Bingley close to collapse.

Andrew Higginson, Tesco's finance director, said: “I think the opportunities are probably bigger now than when we first announced the [RBS] deal in July. Customers are looking for a service they can trust, somewhere it's safe to put their money, and I think there are lots of opportunities as a challenger brand.

“It could be a year away, but a current account would be a perfect product that creates a relationship with the customer day-in, day-out; it's at the centre of what we are trying to build. We haven't gone into mortgages for the simple reason we couldn't see a way of making money, but you have seen the return of more rational pricing in the market - and that would potentially open up the opportunity for us to go in.”

Shares in Tesco rose 17.7p, or nearly 5 per cent, to 387.6p as its half-year results dispelled fears that Britain's biggest retailer could be struggling amid the strong growth of Asda, Wm Morrison and discounters such as Aldi and Lidl.

Sir Terry said that while Tesco had lost a “few customers”, a new range of 400 discount brands would help the retailer to win them back. “We have lost customers to retailers with a strong price image, but these are relatively new customers acting a lot more on superficial impulses. Truly price sensitive customers haven't gone away as they know our price and value is very good,” he said.

The underlying half-year profits of £1.4 billion over the six months to August 23 were 10.3 per cent higher than the same period a year ago. Total sales rose 14.1 per cent to £28.1 billion, with international sales up 26.8 per cent. Tesco plans to open 12.5 million sq ft overseas in the coming year - a 25 per cent increase.

In the UK, like-for-like sales, excluding fuel, were up 3.7 per cent, with the growth rate accelerating towards the end of the summer.

Sir Terry said it was clear that consumers were feeling the strain from rising energy bills, but he disputes the official inflation figures. He wrote to the Bank of England this year to call for a cut in interest rates and argued that the real inflation rate was lower than the one indicated by the Office for National Statistics.

“We see a total universe of price increases. They are only working on something like 200 items, so we know what the actual inflation figure is,” he said. “We believe the food price inflation has now peaked.”

Sir Terry concluded: “Producing this kind of performance hasn't been easy. Consumers have been under strain and, as retailers, we prefer the wind at our backs. Now it's in our face. It's a challenging background, but I believe Tesco is best in times like these.”

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