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Lloyds Banking Group doubled profit in the first quarter, reporting £1.3bn despite being forced to set aside £450m for payment protection insurance mis-selling and the HBOS scandal.

The banking group, which is expected to be fully re-privatised within weeks, posted the 99 per cent increase in pre-tax profit in the first three months, up from £654m in the same period a year ago.

Profit was buoyed by the absence of an £800m bill in the first quarter of last year for buying back complicated high-yield bonds that no longer counted towards the bank’s capital buffer.

However, Lloyds was forced to earmark another £350m for PPI in this year’s first quarter, and £100m to compensate HBOS victims whose businesses were crippled by the bank’s Reading division before Lloyds acquired the lender in early 2009.

The extra PPI provision was made after the Financial Conduct Authority pushed back its planned deadline for compensation claims by a few months to August 2019.

The results come only days after the government announced it has recovered the £20.3bn of taxpayer support to bailout the bank during the financial crisis. The government is expected to make a profit running into hundreds of millions of pounds once it offloads its
remaining 2 per cent stake in the coming weeks.

António Horta-Osório, chief executive of Lloyds Banking Group, said: “In the first three months of this year we have delivered strong financial performance with increased underlying profit, a doubling of statutory profit, and strong capital generation.”

Stripping out such one-off items, the bank posted an underlying profit of £2.1bn, up 1 per cent from last year. The profit beat analysts’ estimates of £1.9bn.

The bank’s net interest margin — the difference between the interest it receives from lending and the amount it pays out – increased to 2.80 per cent up from 2.74 per cent a year earlier.

Its cost-income ratio improved to 47.1 per cent from 47.4 per cent a year ago. Mr Horta-Osorio said at full year results in February that the bank is targeting a ratio of 45 per cent by the end of 2019. UK banks are coming under pressure to slash costs as record low interest rates continue to squeeze margins.

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