HSBC has warned that conditions in financial markets are at their toughest “for several decades” after suffering a 28% fall in half-year profits.

Europe’s largest bank saw profits drop by $3.9bn to $10.2bn (£5.2bn) in the first six months of the year, as its North American arm made a $2.8bn loss.

The firm announced $3.7bn in fresh credit writedowns.

HSBC has been among the banks worst hit by the credit crunch, whose financial toll has run into the many billions.

It has already announced writedowns in the value of its assets - linked to the slump in the US housing market - of more than $15bn.

HSBC shares fell by more than 1% in initial trading after it announced its results and stressed that it would increase its shareholder dividend by 6%.