HSBC has become the first UK bank to reveal the cost of settling claims for the refund of "illegal" overdraft fees by revealing that it paid out almost £120m in the first half of 2007.

Europe's biggest bank said that UK personal banking accounted for only 7% of its global profits, as it reported higher-than-expected bad debts, struck a largely upbeat tone on the world economy, but also warned there could be "further asset price dislocation".

Analysts had estimated that refunds across the industry would top £200m in the first half, but HSBC's numbers indicate the total could be far higher.

Last week, the Financial Services Authority allowed the UK banks to freeze their torrent of claims for the refund of overdraft charges, while their legality is tested in court by the Office of Fair Trading.

"This is an industry-wide issue and the size of the refunds that we have made demonstrate our commitment to treating our customers in a fair and transparent manner," HSBC's chief executive Michael Geoghegan said. The bank admitted to refunds of $236m (£116.4m) in a six-month period, or almost £5m a week. Tens of thousands of customers have this year claimed back up to six years' worth of penalty fees, spurred on by consumer campaigns including template letters on websites, and newspaper evidence that banks have repaid charges rather than defend them in court.

HSBC, meanwhile, calmed some market nerves by striking a bullish tone on the global economy, in spite of a big rise in bad debts linked to its problems in the crisis-hit US mortgage market. That helped lift its shares initially by 2.5%, spreading relief across the banking sector after last week's correction which saw the sector lose 5%. HSBC closed 12p firmer at 892.5p.

"The stock appears to be enjoying something of a relief rally - relief that bad debts were not even worse," said Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers. "That said, investors should not sigh too deeply. Profits from the group's personal financial services division were down a considerable 20% and worries over credit conditions are unlikely to recede just yet."

The bank said its personal banking arm had made £331m and its commercial banking arm £487m before tax in the UK.

It was HSBC which fired one of the early warning signals on the credit squeeze earlier this year when it blamed bad US mortgage loans for its first ever profit warning. But yesterday it said pre-tax profit had risen 13% to $14.2bn (£7.1bn) in the six months to June 30, boosted by strong growth in Hong Kong, the Asia-Pacific and its investment banking arm, and almost $1bn ahead of analyst forecasts.

However, the bank said the underlying rise was 5%, net of a $1bn gain from the dilution of a holding in its mainland China interests.

The closely-watched charge for bad debts, however, soared by 63% on the same period last year to $6.35bn.

Simon Willis, analyst at NCB, said: "We think that the true underlying growth may be some way short of the headline growth." He said the bad debt charge was about $1bn higher than expected.

HSBC insisted that the world economy "remains remarkably buoyant", adding: "There is growing evidence of economic decoupling, with US weakness not constraining economic activity elsewhere."

However, the bank said there were risks to the world economic outlook, and that it remained cautious in its risk appetite. "Excess liquidity in global financial markets could lead to further asset price dislocation."

The bank's underlying first-half revenues rose 16%, just outpacing cost growth of 15%, driven by an "excellent performance" in Asia, with Hong Kong profits up 25% and the rest of Asia-Pacific 37%. Its CIBM investment bank arm hiked profits by 29% to $4.2bn.

HSBC also said it had "committed extensive resources" to Scotland this year, opening hi-tech "stores" in Princes Street, Edinburgh, and later this year in Perth.£120m paid in overdraft compensation