Lloyds Banking Group PLC (LON:LLOY) posted a 23% increase in first-half pre-tax profit even as it took a fresh £460mln provision for the payment protection insurance (PPI) mis-selling scandal.
The PPI provision comes on top of the £100mln the lender has set aside to cover claims, bringing its total charge to £550mln for the six months to June 30.
The bank said total provision will cover an expected 13,000 PPI complaints a week until August 2019 – the deadline set by the Financial Conduct Authority for submitting claims. Lloyds has so far spent £18.8bn on the scandal.
Nevertheless, Lloyds delivered a statutory pre-tax profit of £3.1bn for the six months to June 30, up from £2.5bn a year ago and broadly in line with expectations of £3.2bn. Profits were boosted by an increase in income and lower costs.
Growth in MBNA offsets pricing pressures in mortgages
Net income grew 2% to £8.9bn with net interest income up 7% to 36.3bn and other income down 7% to £3.1bn.
READ: UK's top banks in the spotlight as Lloyds, Barclays and RBS report interims
The banking net interest margin rose to 2.93% from 2.82% last year, driven by growth in MBNA -- the credit card business Lloyds bought last year. The company said the benefits of MBNA offset the pricing pressure of tough competition in mortgage lending.
However, loans and advances to customers fell 3% to £442bn, reflecting the adoption of IFRS 9 accounting standards and the £4bn sale of its Irish residential mortgage portfolio to Barclays PLC (LON:BARC) in May.
The common equity tier-1 capital ratio-a measure of financial strength- rose by 1.2 percentage points to 15.1% before dividends.
Lloyds recommended an interim dividend of 1.07p, compared to 1.0p last year. The group has completed 75% of its £1bn share buyback, which started in March.
For the year, the group expects its capital to increase by 200 basis points and its net interest margin to be in line with the first half.
Restructuring efforts
Lloyds returned to private ownership last May after the government sold the last of its shares in the lender, nine years after bailing it out during the financial crisis.
The move followed a successful turnaround under chief executive António Horta-Osório.
In February Horta-Osório unveiled a new three-year strategy, which involves improving its digital services to fend off competition from established rivals and upstart financial technology firms.
"We have made a strong start in implementing the strategic initiatives which will further digitise the group, enhance customer propositions, maximise our capabilities as an integrated financial services provider and transform the way we work," he said in today's interims.
Shares rise
In late afternoon trading, Lloyds shares were 1.9% higher at 63.54p.
Neil Wilson, chief market analyst at Markets.com commented: “Another stellar performance from Lloyds. The bank is positively thriving since shaking off the handcuffs of government ownership.
“Having noted that the bank seemed to be firing on all cylinders after a bullish FY report, the group is not only living up to robust guidance but is performing some way ahead of expectations.”
-- Updates share price, adds analyst comment --