Lloyds hints at special divi as PPI cost rises again

State-backed Lloyds Banking Group has added £1.4 billion to its bill for compensating customers mis-sold payment protection insurance (PPI).

Underlying profit increased 15 percent to 4.38 billion pounds from 3.82 billion pounds last year driven by increased income, flat costs and lower impairment charges.

Lloyds’ finance director, George Culmer, said the number of claims and the average compensation paid per customer were higher than expected in the first half.

The bank also said that having now resumed dividend payouts it will consider using any excess capital to distribute special dividends.

“We have delivered significant improvements in both underlying and statutory profitability, while at the same time strengthening the balance sheet, improving our customers’ experiences and continuing to support and benefit from UK economic growth”, Horta-Osório said in a statement.

“The 1.4 billion in additional PPI provisions concerns us”, said Sandy Chen, an analyst at Cenkos Securities Plc in London.

The bank was recently fined a record £117m by the Financial Conduct Authority (FCA) over the mis-sold PPI.

The bank released its half-year results this morning, showing healthy profit growth – £1.19bn, compared with last year’s £863m.

The Treasury’s stake in Lloyds has shrunk to less than 15% in recent months.

The bank announced that further to an interim dividend of 0.75p per share – totalling £335m in payments to shareholders – there is a view to increasing the dividend pay-out ratio to “at least 50% of sustainable earnings”.

Lloyds, which is Britain’s biggest retail bank and sold more of the policies than rivals, said the charge was disappointing and reflected a higher-than-anticipated rate of complaints.

PPI complaints against Lloyds have fallen less than expected and the total set aside by the bank in relation to the scandal has now reached £13.4bn, of which £2.2bn has yet to be spent.

Meanwhile, across the Irish Sea, another Bank that had be bailed out during the financial crisis reported a doubling of first-half profits.

“Today’s results demonstrate the strong progress we have made in the first half of the year”, Horta-Osorio said.

Mr Horta-Osorio said Lloyds was on course to be fully privatised in the next 12 months.

That could block the Edinburgh-based lender from bidding for 13 billion pounds of mortgages owned by United Kingdom Asset Resolution Ltd., which oversees the remaining bank assets that were nationalized during the financial crisis.