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Published: Thu, October 27, 2016
Economy | By Melissa Porter

Lloyds to set aside another £1bn to cover PPI costs


Lloyds Banking Group set aside a further provision of £1bn for compensation for mis-selling payment protection insurance in the third quarter of the year, but the bank reaffirmed full year guidance despite a dip in net income and profits.

Statutory pre-tax profits dropped to £811m for the three months to September, down 15 per cent from £958m the year before.

The bank's underlying profit for the third quarter came in broadly flat at just under STG2 billion.

The British government bailed out Lloyds during the financial crisis in 2008 at a cost of some £20 billion.

LBG chief executive Antonio Horta-Osorio said in Wednesday's company statement that "the outlook for the United Kingdom economy remains uncertain, however the strength of the recovery in recent years means the United Kingdom is well positioned". Lloyds has fallen 26 percent this year for the second-worst performance among Britain's largest banks, behind Royal Bank of Scotland Group Plc.

A highlight of the quarter was the strong capital generation, with net capital generation of 0.6 percentage points meaning common equity tier 1 (CET1) ratio stood at 14.1% pre dividend and 13.4% post dividend.

The new PPI provision served to push third quarter profits down 15 per cent on past year to £811 million.

Chief executive officer Antonio Horta-Osorio, 52, remains tangled in Britain's costliest banking scandal as he attempts to navigate record-low interest rates and a potential economic slowdown sparked by the country's vote to leave the European Union.

Earlier this year, the Financial Conduct Authority moved to set a June 2019 deadline on PPI claims.

The bank also said that its pension scheme had turned from a £430m surplus deficit of £740m as as a result of the plunge in bond yields caused by the low interest environment.

"The outlook for the United Kingdom economy remains uncertain, however the strength of the recovery in recent years means the United Kingdom is well positioned", the bank said in a statement.

Lloyds said that it has accounted for a further provision of £150m to cover other conduct issues, which includes £100m in respect of packaged bank accounts.

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

Earlier this month, Britain's Treasury said it would no longer offload its final nine-percent tranche of shares in LBG to the public, preferring institutional investors because of market volatility.

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