Lloyds profits rise despite £1.4b provision

The latest provision was around £400million more than had been expected as complaints have continued to flood in.

The amount overall the bank has set aside to pay for PPI now totals a “painful” £13.4bn “rather higher than the market had anticipated” Richard Hunter, at Hargreaves Lansdown said.

The bill for administration and staff costs alone for the PPI scandal has climbed to around £3billion.

Some cases saw complaint handlers reject claims on the basis that the sales process used was robust, even when this was not the case. Strip out those fines and one-off costs, and Lloyds made nearly £4.4 billion, up 15% – impairments plunged by 75% and total income rose 2% to almost £9 billion.

Finance director George Culmer said Lloyds was assuming a “significant decrease” in complaints volumes over the next 18 months.

Its half-year report, published today, shows the group lent £16bn to borrowers in the first six months of the year, down from £19.8bn in the same period last year.

Stripping out the costs for misconduct and other charges – such as £660million from the sale of TSB to Spain’s Sabadell – profits jumped 15 per cent to £4.4billion.

It also included £175 million set aside over the mis-selling of packaged bank accounts – products where customers pay a fee in exchange for benefits – though it denied that this area might become “the next PPI scandal”.

This was despite incurring a further charge of £435 million the first half of 2015.

Analyst Richard Hunter at Hargreaves Lansdown said the results confirmed Lloyds’ recovery was firmly on track.

He added that he expected the bank, in which the government took a 43 per cent stake at the height of the financial crisis, would be wholly back in private hands within the next 12 months.

“We think that a proper timeline done in a fair way would be a positive thing to do”, Lloyds chief executive Antonio Horta-Osorio said.

He added that the lender was undergoing a “digital revolution” with more than 11 million online users and almost six million using its mobile services. The bank said the capital it retains can be broken down into a 12% ratio plus a further year’s ordinary dividend, meaning that surplus capital is now seen as that which is over and above a 13% CET1 ratio.

“On the current earnings forecast this translates to a dividend of about 5p per share in the next two or three years, which is a yield of around 6% with scope to grow in the longer term”, said Message, manager of the Old Mutual UK Income Fund, which holds a 3.6% weighting in the bank.