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Lloyds Banking Group annual profits fall by 26 per cent

By Philip Smith

High PPI compensation payouts and provision for bad loans are cited as the cause

Profits at the UK’s biggest domestic lender, Lloyds Banking Group, have fallen by 26 per cent. Increasing bad debts and compensation paid to customers for mis-sold payment protection insurance (PPI) amounting to nearly £2.5bn (€3bn, $3.2bn), were cited as the cause.

Impairments on bad loans, the provision indicating the bank does not expect to be able to collect all that is owing, rose to £1.3bn up from £937m the previous year.

That was exacerbated by two company failures hitting its commercial division and weaker second-hand car prices, which affected its motor finance business.

This resulted in pre-tax profits falling to £4.4bn compared with £6bn a year earlier, but was ahead of the £3bn expected by analysts.

The figures mean the total pay package for chief executive António Horta-Osório has been reduced by 28 per cent. Staff bonuses are also being cut.

While bad for Lloyds' investors and staff, the bank’s results are also seen as an indicator of the UK economy as a whole, as Lloyds is the UK’s largest home loan provider and a major source of business loans.

Despite the lower than expected profits, Horta-Osório remained optimistic saying the economy remains “resilient” and that the country now has “a clear sense of direction”.

Lloyds shares were up more than 3 per cent in early trading.

FURTHER READING: Morgan Stanley picks Lloyds as its top British bank

FURTHER READING: Lloyds bank profits fall sharply due to £1.8bn PPI charge

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