National Australia Bank warned further provisions may be needed although it also signalled an improvement in results at its UK operations, which include Yorkshire Bank.
NAB said the bulk of the £128m figure noted in accounts for the six months to March 31, 2014, was for interest rate hedging products and certain tailored business loans, which it had previously set aside £36m for, with the remaining £13m for unspecified other matters.
The bank said: "There remains a wide range of uncertain factors relevant to determining the total costs associated with conduct related matters and there is risk that additional provisions will be required."
The UK banking arm also signalled that like the rest of the industry it is continuing to see a greater than expected volume of payment protection insurance claims although it has not yet raised any additional provisions from the £386m suggested in October.
David Thorburn, chief executive of Clydesdale Bank, said: "PPI has not run its course yet. We have a lot of work still to do before we get to the end of that journey."
NAB said its UK banking operations delivered an increase in underlying profits from £135m to £144m.
A reduction in bad and doubtful debts in the six months from £91m to £55m helped boost cash earnings before tax from £44m to £89m. Mr Thorburn said: "There is no doubt about it the backdrop of the recovering economy is a tailwind for our business and that is helpful to us."
There was an 8.9 per cent growth in mortgage lending in the UK in the period although muted demand for business lending saw average gross loans dip 2.6 per cent to £26.7 billion.
Mr Thorburn said he felt NAB's UK units, which are not involved in lending through the government backed Help to Buy scheme, had outperformed the market.
This was thanks to investment in systems and growth in the mortgage broker market. He said: "What we have found is mortgage demand progressively getting stronger.
"There is quite a lot of investment going on in underlying systems and performance. We are trying to make it easier for our staff to handle and easier for our customers to go through."
In regards to business lending Mr Thorburn believes there are more positive signs coming through.
He said: "Demand is picking up.
"If you look at our pipeline of new business opportunities it is almost double what it was a year ago."
Clydesdale Bank has gone through a major period of restructuring across the past two years which saw more than 1,400 people leave.
In March this year it announced a number of branch closures.
Mr Thorburn indicated the bulk of the upheaval was now in the past.
He said: "Change never stops in any business but that scale of change is behind us.
"More than anything else we want our retail business and commercial banking operations to grow."
Mr Thorburn acknowledged a need for trust to be rebuilt between banks and their customers. He pointed to the appointment of Debbie Crosbie as an executive director to lead what the bank calls its customer trust and confidence initiative.
Mr Thorburn said: "For Clydesdale Bank it is really important competitively that it has to be a better service experience [than our competitors] in all respects to guarantee us a sustainable future. This initiative has to make a difference in reality for our customers and to our reputation.
"What underpins it is making sure that in everything you do with customers you are clear, straightforward to deal with and fair so they trust you more than people trust banks today."
Incoming NAB chief executive Andrew Thorburn, no relation to his Glasgow based namesake, takes over from Cameron Clyne in August.
However the New Zealand based career banker is familiar with NAB's UK operations and will be in Scotland next month.
NAB chairman Michael Chaney has already said it remains committed to trying to offload its UK assets.
David Thorburn said: "The good thing is Andrew is a known quantity. He has been over here a number of times in the past and is familiar with the business and the team here.
"So we don't have someone new coming in where we have to explain the history of the organisation."
NAB posted an 8.5 per cent increase in cash earnings to A$3.15 billion for the six month period.