Banking giant Barclays today reported an 8% rise in profits after a bumper six months for its investment banking arm.

Group pre-tax profits rose to £2.98 billion in the half year to June 30 as the bank said it was "solidly profitable" in the period.

Barclays Capital - the firm's investment banking division - posted a 100% increase in profits to £1.05 billion.

Meanwhile the retail banking arm saw profits down 61% to £268 million in a "challenging" economic climate.

Chief executive John Varley said: "The environment has remained very difficult in 2009 as a consequence of the onset during 2008 of economic recession in most parts of the world in which we operate."

Staff costs increased 36% to £4.8 billion and the bank said this was driven by a 32% rise in salaries and incentive payments, primarily in Barclays Capital. Barclays said this reflects the inclusion of the acquired Lehman Brothers' North American businesses.

The news comes after reports that executives at the division are in line for pay and bonuses worth an average £250,000 for six months' work.

Remuneration is a thorny issue for banks after the Government bail-outs of last year and, although Barclays did not receive state aid, its policies will be scrutinised for signs of a return to the old days of high risk and big rewards.

Barclays Capital salvaged the investment banking business from the wreckage of failed Lehman Brothers and its strong performance reflects the benefits of the acquisition.

Mr Varley said: "Our strategy has helped us weather the crisis and we want our employees, customers and shareholders alike to continue to benefit from it over time."

He expressed confidence that Barclays would remain profitable for the rest of the year.

"The trends that lie behind our operating performance in the first half of this year were again observable in July," he said.

"We are realistic about just how difficult the environment is, and will remain, but we are committed to delivering another year of solid profitability through our continued emphasis on serving our customers and clients."

Barclays managed to shore up its finances in the crisis without a Government bail-out.

The bank instead turned to Middle East investors for funding and has also agreed the £8.2 billion sale of its Barclays Global Investors fund management division.

Barclays' shares fell to lows below 50p in the dark days of January, but have recovered to trade around 300p as fears of state intervention passed.

Mr Varley said the group would not be making a decision about the level of bonuses for staff until later this year.

He told the BBC Radio 4 Today programme: "The subject of compensation is a hot topic and I understand that, and it is very important that we are sensitive to the views of citizens and indeed central bankers like Mervyn King on this subject.

"We do not make bonus payments at this point of the year. The year is not over - there are five months to go. We will make our decisions about variable compensation at the end of the year.

"When we do so, we will take guidance from the Financial Services Authority... we will take guidance from the Walker review on governance... so we are sensitised to this issue and we will behave responsibly."

Barclays' profits were in spite of a £4.5 billion write-down on impairments, an increase of 86% on a year earlier following further losses on credit market exposures and charges on the deteriorating quality of loans.

Mr Varley said: "In some of our loan books we have seen the rate of deterioration reducing and some signs of stabilisation."

But he warned that the full scale of bad debts may take time to appear as the recession took its toll on households and businesses.

"Unemployment has a lagging effect on bad debts but the rate of deterioration is reducing," he said.

The firm said small improvements were appearing in the UK, US and other parts of its business.

Analyst forecasts of full-year write-downs reaching between £9 billion and £9.6 billion, were described as "reasonable" estimates.