Lloyds takes another hit as PPI costs rise to £17bn

Still partly state-owned Lloyds had already set aside a massive £16 billion to tackle the fallout of payment protection insurance (PPI) before today’s latest provision.

The additional contingency had been expected after the deadline for PPI claims was extended to June 2019 and comes on top of a charge of £150 million set aside to cover the cost of other “conduct issues” - mostly related to the sale of packaged bank accounts.

“It would be the last big PPI provision that we would expect to take,” said George Culmer, Lloyds’s finance chief, adding that the charge should “absolutely” take the bank through to the 2019 deadline.

The PPI announcement came as the bank announced that pre-tax profits for the three months to the end of September fell 15 per cent to £811 million.

Total income for the quarter rose by 1 per cent to £4.27 billion.

The group, which includes Bank of Scotland, said its net interest margin - the difference between the interest it gets from borrowers and what it pays savers - was 2.69 per cent for the third quarter, down from 2.74 per cent in the second quarter, “partly reflecting the base rate change in early August”.

That was when interest rates were cut to 0.25 per cent from 0.5 per cent as the policymakers at the Bank of England attempted to stimulate the UK economy in the aftermath of the Brexit vote.

In the nine months to the end of September, pre-tax profits were up by 52 per cent to nearly £3.3 billion, while total income was little changed at £13.15 billion.

Lloyds also confirmed speculation that, like other British companies, its pension schemes had been hammered by the bond market volatility in the wake of June’s Brexit vote.

While Lloyds’ defined benefit plans had a £430m surplus at the end of June the schemes have now slumped to a £740m net deficit.

However, chief executive Antonio Horta-Osorio insisted that he did not think the decision to leave the European Union would affect Lloyds “very much”, even though the bank is almost entirely focused on the UK.

Mr Horta-Osorio said: “We think all retail activity, including credit cards, debit cards, mortgages, so consumer activity overall, is the same following Brexit, we do not see any significant change”.

However, he added that some businesses “have deferred elements in their investment plans and borrowing”, a trend that started before the referendum although the Lloyds boss said the move “is significant but not very big”.

Earlier this month the government said it was scrapping plans to sell its remaining 9 per cent stake in the bank to members of the public and will instead use a “trading plan”, with small tranches of shares sold to institutional investors.