DOUGLAS Flint, the Scots-born chairman of HSBC, said the bank's current management team is "untarnished" by money laundering failures that have led it to make a $700 million (£455m) provision, but signalled that chief executive Stuart Gulliver could see his bonus cut.

The bank boosted its position in Scotland with a 25% year-on-year rise in business lending balances and a 20.9% increase in mortgage lending in the six months to June 30.

But the group posted a 3% fall in underlying profit to $10.6 billion for the period after it also took an additional $1.1bn charge for payment protection insurance mis-selling compensation and $240m to cover claims small businesses were mis-sold interest rate swaps.

HSBC did not make any provisions for costs arising from the Libor manipulation scandal that saw rival Barclays fined £290m

The bank said no member of staff had been sacked or suspended over the issue.

Mr Flint insisted that current executives are not to blame after a US Senate report published earlier this month criticised lax controls at the bank's Mexican arm between 2004 and 2010 which left it vulnerable to being used for money laundering.

He said: "The management team in place today is untarnished by what happened in those years."

He added that "more than a few" people had left the bank following the discovery of the problems.

HSBC admitted that the eventual cost of the affair could be "significantly larger" than the $700m it has made.

Asked if executive bonuses would be affected by the affair, Mr Flint noted that elements such as reputation and compliance inform Mr Gulliver's award.

Mr Gulliver, who took the top job in 2011, admitted: "We have had reputational damage."

He added: "What happened in Mexico and the US is shameful, it is embarrassing, it is very painful for all of us in the firm."

But the bank said it had no need to conduct a Barclays-style internal investigation because the way it is run has been overhauled and centralised in recent years.

"The firm clearly lost its way," Mr Gulliver said. "We absolutely have changed."

He added: "We apologise for our past mistakes in relation to anti-money laundering controls, and it is a priority for senior management to build on steps taken to manage risk and ensure compliance more effectively."

HSBC's reported profit before tax was $12.7bn, 11% higher than in the first half of 2011, after taking $4.3bn of gains from disposals.

Group revenue fell to $29.6bn from $31.1bn.

The bank reported pressure from rising bankers' salaries in regions including Asia, Latin America and the UK which offset savings from a shrinking workforce.

HSBC employs 271,500 people, down from a peak of 299,000 in early 2011. Employee compensation for the first half of the year rose to $10.9bn, from $10.5bn for the same period last year.

HSBC opened new branches in Falkirk, Dundee, Aberdeen and Dumfries in the first half of 2012 and said its increased retail presence in Scotland helped it increase its number of affluent Premier customers by 15.7%. Its lending in Scotland has totalled £1bn to date.

Doug Baikie, interim chief executive for HSBC in Scotland, said: "As well as helping businesses unlock international opportunities, our recorded increase in SME lending balances also demonstrates our continued commitment to supporting Scottish businesses."

The bank is taking a cautious view of the future. It said: "Economic conditions in Europe and other Western economies will continue to be subdued. Our assumption is European leaders will take the necessary measures to preserve the euro but, even so, we expect the eurozone's economy to contract this year."

HSBC's shares rose 12p or 2.3% to 543.1p.