PPI still weighs heavy but Lloyds to pay special dividend as profits rise

However, the bank also reported a 7 per cent fall in annual pre-tax profits to £1.6bn compared with £1.8bn a year earlier.

The latest results revealed the continuing costs of the payment protection insurance (PPI) scandal which has forced the lender to increase compensation provisions for the year by £2.1 billion, taking the total to £4bn.

All-inall, the new provisions take the total the bank has set aside to pay compensation to £16bn.

But the still partly state-owned business said shareholders are to get a special dividend of 0.5 pence a share.

“We made a strong start in 2015 to the next phase of our strategy and have delivered a robust financial performance, enabling increased dividend payments,” chief executive Antonio Horta-Osorio said.

The bank last year paid its first dividend in more than six years following the financial crisis.

It said it would pay an ordinary dividend of 2.25 pence a share, plus a special dividend of 0.5 pence, giving a total payout to shareholders of £2 billion.

The government, which held 43 percent of Lloyds after its rescue, has since cut its stake to around 9 percent.

But last month, finance minister George Osborne put on hold plans to sell at least £2 billion of Lloyds shares to the public this year because of financial market turmoil.

The bank said its additional provision in the fourth quarter to compensate customers for mis-selling of payment protection insurance was related to proposals to impose a deadline on claims.

British banks have set aside some £30 billion for the mis-selling of loan insurance, making it the costliest scandal of its kind in British banking history.

The insurance policies were supposed to protect borrowers against sickness or redundancy, but were often sold to those who would have been ineligible to claim.

People have until 2018 to claim under regulatory plans intended to draw a line under the affair.

Lloyds said its bonus pool for the year was 353.7 million pounds.

Lloyds shares leapt 10 per cent soon after the stock market opened, making the bank the biggest riser on the FTSE 100.