By Max Colchester
LONDON-- Lloyds Banking Group PLC on Friday reported a rise in
first-half profit despite the bank taking a GBP1.4 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 GBP677 million, compared with
GBP574 million in the same period last year, as impairment charges
dropped steeply.
The British retail bank continued to reap the benefits of a
resurgent U.K. economy and low interest rates, which has kept loan
defaults down. "The U.K. economy will continue to strengthen and we
will continue to benefit from this," Chief Executive António
Horta-Osório said.
Lloyds confirmed it would pay an interim dividend of 0.75 pence
a share and pledged to consider share buybacks or special dividends
if it built its capital buffer further. Revenue rose 2% to GBP8.96
billion in the first half and the bank's net interest margin, the
difference between the rate at which the bank borrows and lends,
increased compared with last year.
The uptick in results came despite the GBP1.4 billion 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. So far the bank has
provisioned GBP13.4 billion to cover PPI claims.
For several years the bank's management has claimed that the
number of claimants is on the wane but Lloyds Chief Financial
Officer George Culmer on Friday said claims remained "stubbornly
high."
Lloyds also put aside another GBP435 million to cover a range of
separate issues, including a fine 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.
The government has previously signaled that it intends to sell
shares in the bank to the general public. On Friday Mr.
Horta-Osorio said he expected the government to fully exit the bank
by the end of the year.
Lloyds said it made an underlying pretax profit--which excludes
restructuring and other costs--of GBP4.4 billion, up 15% from the
same period last year.
Write to Max Colchester at max.colchester@wsj.com
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