Further £550m PPI charge hits Lloyds' profits in Q2

The latest fine takes the bank’s total PPI bill to £20bn.

Its results show that total costs fell by 5% to 4bn over the first half of 2019 while operating costs reduced by 3% and remediation is down 44%.

However Hargreaves Landsdown says the small decline in net income and higher impairments "more than offset progress in reducing costs".

Lloyds said that continuing economic uncertainty is "having an impact and leading to some softening in business confidence as well as in international economic indicators".

Nicholas Hyett, equity analyst at Hargreaves Lansdown, commented: “A tougher economic environment and increasing competition has left Lloyds with lacklustre income growth in the second quarter, that’s been compounded by an, admittedly anticipated, increase in impairments.

"These aren’t exactly promising trends, and all hint at the underlying weakness of the UK economy. For now consumers still look relatively upbeat, but increased exposure to things like unsecured retail lending, car finance and credit cards mean that should conditions turn sour for UK consumers Lloyds will suffer.

"Fortunately for Lloyds, the bank’s been able to offset the macroeconomic weakness with more cost savings – improving an already market leading cost to income ratio. Digitising processes and cutting face-to-face branch time has been a major driver behind those savings.

"The unwelcome surprise in these results came from PPI charges. A higher than expected charge this quarter will hold back full year capital generation, and is likely to have negative consequences for shareholder returns this year. The bank will hope this is a final Parthian shot from the miss-selling scandal which has cost it billions, and with August’s deadline for claims fast approaching, the regular extra provisions will hopefully be an unpleasant memory by Christmas.”

Ian Forrest, investment research analyst at The Share Centre, added: “With less than a month to go before the deadline, Lloyds’ interim results showed the long-running burden of PPI mis-selling continues with the bank having to make another £550mn provision in the period, taking the total to £20bn. Beyond that there were some mixed figures as underlying profits were slightly better than expected while the full-year forecast for return on tangible equity was lowered from 14-15% to 12%.

"While there has been a late surge in PPI claims the deadline coming shortly should finally draw a line under an issue that has blighted the shares for several years. The 5% cut in costs is welcome but clearly Brexit uncertainty is weighing on what is a heavily UK-orientated bank."