Lloyds Bank sets aside further £1bn for PPI compensation, taking total up to £17bn

Profits down 15 per cent as Brexit creates £730m hole in in pension fund and causes some businesses to push back investment plans, bank says

Lloyds profits are down 15% after the PPI hit (PA)

Lloyds Banking Group’s has set aside another £1bn to compensate customers who were wrongly sold payment protection insurance (PPI).

The charge helped to slash Lloyds’ profits by 15 per cent to £811m from £958m a year earlier, while total revenues edged up 1 per cent to £4.27bn.

Lloyds remains tangled in Britain’s costliest ever banking scandal, while facing record-low interest rates and a potential economic slowdown sparked by Brexit. It has now paid out more than £17bn in PPI compensation and costs, the highest of any other major British lender.

On Brexit, chief executive Antonio Horta-Osorio said that some business customers had pushed back investment plans and borrowing. “The outlook for the UK economy remains uncertain, however the strength of the recovery in recent years means the UK is well positioned.” It was too early to assess longer term trends, he said.

Record-low interest rates implemented by the Bank of England following the Brexit vote have squeezed profitability from lending.

The bank’s pension scheme moved from a surplus of £430m to a deficit of £740m in the third quarter as a result of the fall in bond yields following the decision.

Laith Khalaf, senior analyst at Hargreaves Lansdown, said the notional shortfall was partly due to the “absurd” way pension liabilities are calculated. When yields are volatile, as they are currently, projected defecits on funds can see large swings, meaning companies are obliged to top up schemes using their own capital.

Lloyds’ fell 3.2 per cent on the news meaning they have slumped by a third since the EU referendum; only RBS has performed worse. The Government resumed the sale of its 9.1 per cent stake in Lloyds earlier this month, abandoning its plan to sell the shares to the public through a large-scale offering.

The increase in PPI provisions come after the Financial Conduct Authority pushed back a proposed deadline for consumer complaints by one year to mid-2019, forcing lenders to set aside additional funds for compensation. Britain’s biggest lenders have now paid out more than £30bn on the scandal since 2011.

Operating costs were little changed from a year earlier at £1.92bn. Mr Horta-Osorio is about three-quarters of the way through his plan to cut 12,000 jobs by 2017 to reduce operating expenses at the bank.