Lloyds sets aside further 1.4 billion pounds for mis-selling redress

Lloyds said it would “look to return surplus capital above core capital of about 13%”, but the weight of charges put a negative tint on this and further progress made by the bank during its first half.

The bank called the additional provision “disappointing”, in its earnings report and attributed it in part to having received a higher than expected number of complaints.

Underlying profit was up 15% from £3.8bn a year ago to £4.3bn, driven by increasing income and lower impairment charges.

Payment Protection Insurance was widely sold alongside an assortment of financial products, including loans and credit cards, to cover customers’ repayments should they fall sick or lose their job.

Last month it was fined £117m by the conduct regulator over its PPI complaints handling.

“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 total amount now set aside by the big five banks for payment protection insurance (PPI) compensation is around £26.6 billion.

Lloyds’ figures also reveal a £660m charge relating to the disposal of TSB, which is being bought by Spain’s Banco de Sabadell.

The taxpayer’s stake, which was once as high as 43% after Lloyds was bailed out the tune of GBP20 billion during the global financial crisis of 2007-09, now stands at 14.98%.

Culmer said: ‘We categorically don’t see this as the next PPI scandal.’ He added that Lloyds is upholding three in ten complaints about packaged accounts, compared with eight in ten about PPI.

It follows the resumption of dividends at the end of 2014, and the bank hopes the payouts make the shares more attractive to investors, enabling the Government to sell down its stake more quickly.

CEO Antonio Horta-Osorio said in a statement: “We are disappointed to announce further provisions today, but we do so from a position of financial and capital strength”.

Lloyds also cheered small investors by raising the prospect of special dividends.

“Our goal is to manage this bank as well as possible”, Horta-Osorio said.

Sources close to the share sale have told The Telegraph that the ongoing divestment of the government’s holding, which is being managed by American investment bank Morgan Stanley, is rattling along at such a pace that at the current rate all the shares will be sold by the end of the year.