Global banking giant HSBC today said half-year profits roared 121 per cent ahead as bad debts plunged to their lowest level since the financial crisis.

The group reported pre-tax profits of 11.1 billion US dollars (£7 billion) in the first six months of 2010 – or a 34 per cent rise to 10 billion dollars (£6.3 billion) on an underlying basis.

HSBC said losses on loans turned sour fell 46 per cent, although it saw trading revenues hit amid “exceptional” stock market volatility.

Banks are bracing themselves for a fresh row over pay and perks on the back of the profits.

The financial sector faced meltdown until it was bailed by billions of pounds of taxpayers’ money.

This week, even part-nationalised banks Lloyds and Royal Bank of Scotland which were hours from collapse at the height of the recession in 2008, are set to show they have clawed their way back out of the red to a half-year profit.

Banks have been warned by Chancellor George Osborne and Business Secretary Vince Cable that they must use their profits to increase lending to businesses rather than bonuses.

They could be forced to sign lending agreements – such as those signed by taxpayer-funded Royal Bank of Scotland and Lloyds.