Lloyds Banking Group’s interim earnings have
been crushed by provisions for missold payments protection
insurance (PPI).

Provisions for PPI amounted to £3.2bn,

£2.2bn more than Barclays

Lloyds was the lender with the largest amount
of PPI sales.

Consequently, the bank made a pre-tax loss in
the six months to the end of June of £3.2bn – a massive slump from
the £1.3bn pre-tax income it had generated in the corresponding
period a year ago.


Retail earnings down

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Pre-tax profit from the group’s retail
operations fell by 12% year-on-year to £2.2bn.

Retail net interest margin slumped by 10% to
£4.2bn on the year-ago period.

The lender’s banking net interest margin stood
at 2.26%, versus 2.44% last year.

Its cost-income ratio rose from 40.8% to 44%

Retail customer deposits rose by 3% on the
year ago to £242.3bn; retail customer loans fell by 2% to

Lloyds CEO António Horta-Osório blamed a
sluggish economic environment, regulatory pressure and increased
competition for retail customers for the dreary results.


Some good results

However, Horta-Osório seems on track with his
plans to turn the bank’s business around and improve its agility,
service and efficiency.

Excluding PPI, the bank reduced the level of
complaints by 24% from the prior year and resolves 90% of all
complaints at first touch. Complaints per 1,000 accounts fell from
2.4 at the end of June 2010 to 1.7 by end-June this year.

Lloyds has also consolidated its ATM and
branch counter networks across its subsidiaries into one IT
systems; although HBOS retail and commercial customer accounts
still need to be integrated into the Lloyds TSB IT platform,
something the bank expects to finish by autumn.

Integration costs for HBOS have now
accumulated to £3.4bn since its acquisition, £642 of these in the
first six months of the year. These were excluded from the interim
results, the bank said.


Upcoming targets include:

  • A stronger
    focus on bancassurance
  • A multi-brand retail strategy with bigger
    focus on online banking offerings, and
  • Revamping the Halifax brand, including
    Saturday opening hours from the beginning of September.