LONDON—Lloyds Banking Group PLC on Friday reported a rise in first-half profit despite the bank taking a £ 1.4 billion ($2.18 billion) provision to compensate customers who were wrongfully sold insurance products.

The bank, which is 15% owned by the British government, said net profit for the six months came in at £ 677 million, compared with £ 574 million in the same period last year, as impairment charges continued to drop. Revenue rose 2% to £ 8.96 billion.

The uptick in results came despite the provision to compensate customers who were sold insurance products they didn't need. Payment Protection Insurance was widely sold alongside an assortment of financial products, including loans and credit cards, to cover customers' repayments should they fall sick or lose their job. Lloyds sold an estimated 16 million such policies since 2000, according to its annual report. For several years the bank's management has claimed that the number of claimants is on the wane. So far the bank has provisioned £ 13.4 billion to cover PPI claims.

In June Lloyds was fined £ 117 million by a British regulator over its processing of PPI complaints.

Meanwhile, the U.K. government is slowly selling down its stake after mandating an investment bank to drip shares into the market. Over the course of the year it has shed a 10% stake in the lender.

In February, regulators gave the bank the all clear to start paying its first dividend since its bailout. On Friday, the group announced an interim dividend of 0.75 pence a share.

The bank reported a 6% rise in net interest income to £ 5.7 billion.

Write to Max Colchester at max.colchester@wsj.com

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