Lloyds posts largest profit in eight years despite fresh spike in PPI costs

Lloyds posted its biggest half-year profit since the financial crisis and lifted the interim dividend, despite hefty fines related to the payment protection insurance (PPI) mis-selling scandal.

In the six months to 30 June, the FTSE 100-listed bank reported a statutory pre-tax profit of £2.5bn ($3.3bn), which fell short of the £2.86bn forecast but was 4% higher year-on-year. The figure marked the largest profit the lender has recorded in eight years.

The bank, which in May returned to private ownership for the first time in eight years, after the government completed the sale of the remaining shares of its 43% stake, also recorded an 8% year-on-year increase in underlying profits to £4.5bn.

Group chief executive, Antonio Horta-Osório said: "Following the successful transformation of the group to become a simple, low risk, UK-focused retail and commercial bank, we have delivered another strong set of results."

However, Britain's largest retail bank was forced to set aside a further £700m to compensate customers affected by the PPI mis-selling scandal. The latest provision, which adds to the £350m it set aside in the first quarter, brings the total compensation cost to £18bn, bigger than any other UK bank.

The lender will also repay approximately £300m to about 600,000 customers over failings in its approach to mortgage arrears policies. Sources close to the bank indicated the it will also set aside an extra £50m to cover administrative costs.

Meanwhile, despite a low-interest environment in the UK, total income rose from £8.9bn to £9.3bn.

"Overall this is a strong set of numbers from Lloyds, blighted, but not overshadowed, by misconduct costs," said Laith Khalaf, senior analyst at Hargreaves Lansdown.

"The government has exited the bank and is now no longer selling stock in the market, which removes a significant downward pressure on the share price."