Lloyds books additional PPI charge as third quarter profit misses estimates

In the three months to the end of September, the FTSE 100 group said its underlying profit declined 8.7% year-on-year to £1.97bn as a result of tougher trading conditions in commercial banking and were slightly below expectations.

Charges for bad loans declined 33% from the previous year, while net interest margin (NIM), a key gauge of profitability in the industry, rose from 2.47% to 2.64%.

As a result, Lloyds slightly refined its 2015 guidance to reflect the earnings trends of the first nine months of the year, slightly improving its outlook for NIM (2.63% vs 2.60%) and impairments, whilst lowering their guidance for other income

Meanwhile, a weakness driven by other forms of income was partially offsets by lower costs, the lender said, as it revealed it had set aside another £500m to compensate customers who bought payment protection insurance.

The provision has almost halved from the £900m the bank set aside in 2014, although it brought Lloyds’ total bill for mis-sold insurance to £13.9bn. Citi analysts suggest the total could hit £21bn in a "worse case scenario".

Earlier this year, the government unveiled plans to reduce its 12% stake in the lender by selling approximately £2bn worth of shares, which represent a 5% stake in the bank, to private investors.

Lloyds shares were down 4.15% to 74.19p at 0828 GMT on Wednesday.