Bank of Scotland owner Lloyds Banking Group has delivered a hike in half-year profits despite its bill for payment protection insurance (PPI) claims jumping by a further £550 million.
The lender, which has been the most exposed to the PPI scandal, said underlying profit rose 7 per cent to £4.2 billion over the six months to the end of June. Statutory pre-tax profits leapt 23 per cent to £3.1bn.
Lloyds also said it was committed to maintaining a large physical banking network, despite the closure of scores of branches in recent years.
The banking giant said it had set aside £550m to cover PPI mis-selling claims in the first half, bringing its total bill for the issue to £19.2bn. The PPI scandal has seen lenders pay back some £31.5bn in total since January 2011 to customers complaining about policies. The deadline for making a complaint is 29 August 2019.
Lloyds was also hit by £377m in restructuring costs during the half-year to cover the likes of redundancy payments as it pushes ahead with a three-year overhaul to ramp up its focus on digital banking. The bank has been undergoing a shake-up of its workforce and branch network. It is to pay an interim shareholder dividend of 1.07 pence a share.
Chief executive Antonio Horta-Osorio said: “We have delivered another strong and sustainable financial performance with increased statutory profits, higher returns, and a strong capital build.
“In February, we announced an ambitious strategy to transform the group for continued success in a digital world.
“We have made a strong start in implementing the strategic initiatives which will digitise the group, enhance customer propositions, maximise our capabilities as an integrated financial services provider and transform the way we work.”
Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “The huge jump in Lloyds’ reported profits can largely be summed up in just three letters – PPI. While the bank has taken another £550m hit in the first half of 2018, that’s around half what it had to put aside this time last year.
“Next August marks the cut-off date for claims, which may flush out some more consumer activity, because there’s nothing that stimulates action quite like a deadline.
“In the short term that may mean Lloyds has to dip into its pockets again, but in the long run that’s going to free up a lot of cash for shareholders.
“While the reported numbers are heavily skewed by PPI, Lloyds’ underlying profit growth shows the bank is in rude health.”
The bank said its net interest margin (NIM) – a key measure of profitability for retail banks – improved on the back of lower deposit and wholesale funding costs, as well as growth in consumer finance and its acquisition of credit card business MBNA last year.
Its NIM is expected to be at similar levels for the full year, regardless of a potential interest rate hike by the Bank of England.