Taxpayer-backed Lloyds Banking Group has revealed lower-than-expected profits after it took an additional £375 million hit to cover payment protection insurance (PPI) claims.
The 40 per cent state-owned bank has now set aside nearly £3.8 billion to deal with PPI compensation after a recent increase in the volume of claims.
Lloyds, which warned that the final cost of the PPI mis-selling scandal may change, revealed pre-tax profits of £288 million for the three months to March 31, compared with £316 million in the previous quarter and City expectations of £500 million.
Lloyds, which includes the Halifax, was pushed to a £3.5 billion loss in 2011 by the PPI mis-selling scandal, leaving taxpayers wondering when they will get their money back.
Chief executive Antonio Horta Osorio announced thousands of job losses as part of his strategic review, as well as plans to sell off large parts of its international operations.
Lloyds said it now expects to hit targets for reducing its non-core assets in 2013, rather than 2014, as it disposed of several businesses in the period, such as its onshore Dubai business to HSBC.
But this hit total income which declined seven per cent to £4.5 billion.
Lloyds cut its provision for bad debts to £1.7 billion, down 31 per cent from the previous quarter, while its exposure to troubled eurozone countries Portugal, Ireland, Italy, Spain and Greece reduced six per cent to £22.9 billion.
The bank said it advanced £3.25 billion of gross new lending to small businesses in the first quarter and is on track to fulfil its commitment of £12 billion of gross new lending to small and medium enterprises (SMEs) in 2012.
Net lending to small businesses grew four per cent year on year, compared with a four per cent decline in the wider market, Lloyds said.
The bank reiterated that it was no longer in exclusive talks with the Co-op over its bid for 632 Lloyds branches.
Lloyds is still in discussions with the Co-op but said renewed interest from financial investment firm NBNK meant it will consider detailed discussions with other parties.
The bank is still working on its own back-up plans to float the so-called “Verde” business on the stock market.