Gloss taken off Lloyds profit rise by new PPI charge

● Former state-backed lender takes another £700m hit on mis-selling

Lloyds Banking Group posted its biggest six-monthly profit in eight years yesterday after fully emerging from part state ownership – but the performance was scarred by a further near-£1 billion provision for customer redress.

Lloyds, the subject of a £20bn taxpayer bailout after its illstarred takeover of HBOS in the financial crash, reported a 4 per cent rise in headline pretax profits to £2.5bn in the first six months of 2017.

Stripping out exceptional items, underlying profits rose 8 per cent to £4.5bn. But group chief executive Antonio Horta-osorio revealed the group had also had to take a further £700 million hit in the second quarter of this year to compensate people mis-sold loan payment insurance.

This was on top of £350m the bank had earmarked for payment protection insurance (PPI) customer redress in Q1, and is the 17th time Lloyds has taken provisions on the issue ahead of the August 2019 deadline for claims.

The lender also revealed that it expects to pay £283m in compensation to mortgage customers who incurred incorrect fees after they fell behind with their mortgage payments.

Lloyds, which also owns Halifax, is Britain’s biggest mortgage provider, roughly accounting for about one in every three. On the new PPI provision, group chief financial officer George Culmer said it was “disappointing to be having to do it again”.

However, Horta-osorio warned it was impossible to draw a definitive line under customer redress in retail banking, comparing mis-selling to bad debts.

“There will always be redress costs, just like impairment losses. In the retail business there will be mistakes that will be made,” he said.

Lloyds, which also owns Scottish Widows and Bank of Scotland, rewarded its 2.4 million-strong army of small shareholders with an 18 per cent rise in the interim dividend to 1p a share.

Horta-osorio brushed aside speculation that he would look to exit the bank after taking the helm in March 2011 and turning it profitable again following billions of pounds of losses in the wake of the financial crash.

“I enjoy the job. I like the people here at Lloyds and I have no intention of going anywhere,” he added.

Culmer said the group’s net interest margin – the difference between what it pays customers on their savings and charges them on loans – would be about 2.85 per cent in the second half of 2017, up from 2.82 per cent in the first six months.

Horta-osorio said that the bank wanted to expand in the motor finance sector because its market share of 14 per cent was less than its general retail finance market share of 21 per cent.

He said the UK economy was resilient despite uncertainty about Brexit. He added that he did not expect the outcome of the Brexit negotiations to be much clearer ahead of the 2019 deadline.