Bad debts surged by 125% at Alliance & Leicester in 2008 as the bank, rescued last summer by the Abbey group, posted losses of £1.3 billion.

A&L said non-performing loans - bad debts - rose to £873 million.That means 1.7% of A&L's lending has gone bad, against 0.7% before the financial crisis.

Its losses for the year mean the crisis blew a £1.7 billion hole in the accounts of the former building society, which made £399 million profit in 2007.

But A&L's saviour, Abbey, its Spanish-owned former rival which itself reported a 26% leap in pre-tax profits to £1.1 billion, said the future was bright for A&L.

"Retail customer deposits increased by £1.7 billion, of which £1.3 billion was attracted since the [October] acquisition by [Abbey's parent] Santander," said Abbey chief executive Antonio Horta-Osorio. "This clearly demonstrates that Alliance & Leicester is seen as a safe haven for UK depositors.

Horta-Osorio said the combination of Abbey, A&L and the savings and branches business of Bradford & Bingley is "a powerful platform for growth in the UK".

He hailed Abbey's result - bad debt provisions remained steady at £365 million - as a result of "our prudent approach to mortgage business".