Profit boost sees Lloyds plan excess capital payout but PPI bill tops £13bn

The bank said profits for the six months to the end of June were £1.19bn, compared with £863m a year earlier

Underlying pre-tax profit — excluding some one-off items — increased to £4.4bn, up 15 per cent from the same period last year. Lloyds said profit was buoyed by a 2 per cent increase in income, a 75 per cent reduction in impairments and lower costs.

The still partly state-owned lender also revealed that it will pay out excess capital to shareholders in a move that paves the way for a special dividend ahead of government’s retail share offer next year.

Over the past year the government has been using share sales to institutional investors to steadily reduce its stake in the bank from 43 per cent at the height of the financial crisis in 2008 to 15 per cent today.

It is expected that the government will announce a discounted share sale to the public - similar to many of the privatisations that took place in the 1980s - in the early half of next year, when its stake is set to be as low at 5 per cent.

In the meantime, Lloyds said it will pay an interim dividend of 0.75p per share, delivering a total of £535m to shareholders. The bank will also pay a full year dividend for 2015, while the board will consider using excess capital above a core tier one ratio of 13 per cent for special dividends or share buybacks.

Lloyds’ chief executive Antonio Horta-Osorio said paying a dividend was “clearly more attractive” for a government retail share offering, by which point Lloyds will have established a progressive policy that targets a 50 per cent payout ratio over time.

However, the latest PPI provision takes the bank’s compensation bill to more than £13 billion and Lloyds was also recently fined a record £117 million by the Financial Conduct Authority (FCA) over the scandal.

The three months to the end of June mark the last quarter in which the bank can set aside PPI compensation against its corporation tax bill.

Lloyds said the additional provision for PPI “disappointing”. It said the extra provision reflected “higher than expected reactive complaints with higher associated redress”.

The bank said it had identified about 1.2 million previously defended PPI complaints for re-review at the end of 2014.

That had now increased to 1.4 million cases, the banks said.

Those cases were being reviewed after the FCA fined the bank as a result of an investigation into the way that some 2.3 million complaints were handled.

The FCA found the bank mis-handled complaints between March 2012 and May 2013.

The bank also recorded a previously reported loss of £660m on the sale of TSB to Banco Sabadell, which it said was now complete.

Mr Horta-Osório added: “Today’s results demonstrate the strong progress we have made in the first half of the year.

“We remain focused on our aim to become the best bank for customer sand shareholders, while at the same time supporting the UK economy.”