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Lloyds Banking Group has more than doubled annual pre-tax profit to £4.2bn on the back of lower provisions for mis-selling payment protection insurance, and has unveiled a £2.2bn dividend payout.

The bank, which is less than 5 per cent owned by government, set aside £1bn for the PPI debacle last year, compared to a total bill of £4bn in 2015.

The pretax profit, up from £1.6bn a year earlier, undershot analyst estimates of £4.4bn.

The sharp decline in mis-selling costs is a boon to shareholders,who have seen successive profit announcements hit by PPI. The bank’s total compensation pot amounts to £17bn.

Lloyds has also announced a special 0.5p dividend on top of a 2.55p ordinary dividend in respect of 2016 — amounting to a £2.2bn payout.

The results bolster government plans for offloading its remaining stake over the next few months, drawing a curtain on the financial crisis some eight years after its £20.5bn bail-out.

Stripping out the impact of PPI and other one-off items, Lloyds delivered underlying profit of £7.9bn, down from £8.1bn in 2015.

The bank said income amounted to £17.5bn, compared to £17.6bn the year before, while operating costs reached £8bn, down from £8.3bn.

Lloyds eased off mortgage lending last year to preserve its net
interest margin – the difference between the interest it receives from lending and pays out on savings. The bank posted a NIM of 2.71 per cent, up from 2.63 per cent the year before.

António Horta Osório, the bank’s chief executive, is focused on growing in consumer credit and other sectors where it is under-represented relative to its size. Lloyds struck a £1.9bn deal to acquire UK cards business MBNA at the end of last year.

Lloyds said at the time the deal would hit capital reserves by 0.8
percentage points, which the bank has revealed it earmarked in the fourth quarter.

The bank strengthened its capital reserves, bolstering the common equity tier one ratio to 13.8 per cent post dividend, from 13 per cent at the end of 2015.

Copyright The Financial Times Limited 2017. All rights reserved.
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