The Bank of Scotland owner has estimated it will have to shell out £283 million to repay about 590,000 mortgage customers who were mistakenly charged between 2009 and 2016 because of the way it applied policies relating to financial difficulty assessments.
That is on top of £700m put aside to deal with PPI claims.
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It comes just months after Lloyds forked out an extra £350m to cover the ballooning cost of the PPI mis-selling scandal, which has now reached more than £18bn.
Results today showed that Lloyds’ underlying profits rose 8 per cent to £4.5bn for the first six months of the year, with total income 4 per cent higher at £9.3bn.
Despite the PPI and mortgage arrears hit, statutory pre-tax profits grew 4 per cent to £2.5bn, and the group – which also owns Scottish Widows and Halifax – said its interim dividend would increase 18 per cent to 1p a share.
Lloyds chief executive Antonio Horta-Osorio said the hike in its payout to shareholders was “in line with our progressive and sustainable dividend policy”.
“The UK economy remains resilient following strong employment and GDP growth in recent years together with private sector deleveraging and rising house prices,” said Horta-Osorio.
“Inflation is however now rising above disposable income given the recent depreciation in sterling and, while this may affect consumption going forward, the economy should benefit from rising exports and earnings from foreign assets.”
He added: “Our differentiated UK-focused business model continues to deliver, with our cost leadership and lower risk positioning providing competitive advantage. Our strong financial performance and strategic progress continue to position us well for delivering our purpose of helping Britain prosper.”
Horta-Osorio also said that Lloyds wants to expand in the motor finance sector because its market share of 14 per cent was lower than its general retail financed market share of 21 per cent.
Chief financial officer George Culmer said the group’s net interest margin – the difference between what it pays on deposits and charges on loans – would be about 2.85 per cent in the second half, up from 2.82 per cent for the first six months.