Lloyds Banking Group's chief executive Antonio Horta-Osorio has defended his decision to accept a pay package worth £11.5m after the bank unveiled a £1.8billion profit despite a new uplift in PPI mis-selling charges.

He was unveiling a quadrupling of pre-tax profit along with the first dividend since 2008, but had to admit PPI claims are refusing to die down.

Questioned on his incentives, the banking chief said 96per cent of targets had been met in the bank's long-term incentive plan (LTIP) for 800 managers, which in his case had been particularly tied to the rise in the Lloyds share price. Between 2011 and 2014 the bank had delivered £14bn of appreciation to the taxpayer, Mr Horta-Osorio said. His plan will pay out £7m in shares alongside a bonus of £800,000 and salary of £1m, and Mr Horta-Osorio said: "I intend to accept the plan, I also intend to keep these shares until the government stake is significantly further reduced. I haven't sold a single share and on top of that I have bought several shares with my own money which I intend to keep."

Lloyds revealed that the government's stake is now down to 23.9per cent, and its disposal will be completed by June.

The value of the LTIP pay-outs to senior management is £30m, the bank said.

The bank disappointed some expectations with the level of the dividend, 0.75p a share, which it described as "symbolic". On the leeway and timescale for improvement, Mr Horta-Osorio said the board had decided on the token payout "in spite of the fact we finished the year with a (core tier 1) capital ratio of 13 per cent, by far the biggest of any of the UK banks".

The £535m dividend payout, £135m of which goes to the Treasury, reduces the ratio by only 0.2 per cent. The bank says it intends to pay out "at least 50per cent of sustainable earnings over the medium-term".

Mr Horta-Osorio said the bank had since 2010 reduced costs from over £11bn to £9bn, though last year's reduction was 2 per cent, and had exited 24 countries, with 95per cent of assets now in the UK. Last year saw SME lending rise by 5per cent, against a market decline of 2 per cent, and the bank said it was the biggest lender to first-time buyers and biggest participator in the government's shared equity scheme. Its mortgage market share was 20 per cent.

The bank said underlying profits rose by 26per cent to £7.8bn, with risk-weighted assets returning 3.02 per cent, up from 2.14 per cent, and the net interest margin is projected to hit 2.55per cent this year. The bad debt charge was cut by 60 per cent to £1.2bn, and the cost-income ratio improved from 52.9per cent to 51.2per cent.

PPI however absorbed a further £700m of provisions in the fourth quarter, taking the year's total to £2.2bn, after £3bn in 2013, and £12bn in total.

Lloyds said complaint volumes fell by 22 per cent in the year but only 12 per cent in the most recent quarter, due to a revival of claims management company activity and "as a result the group is forecasting a slower decline in future volumes than previously expected". If complaint levels in the first half of 2015 failed to subside, there could be a further £700m provision.

Lloyds also took a £925m charge for other conduct and regulatory issues including £217m for Libor manipulation, and another £150m for interest rate swap mis-selling to small businesses, taking the total to £680m.

There was £430m set aside to cover "matters...including potential claims and remediation in respect of products sold through the branch network and continuing investigation of matters highlighted through industry-wide regulatory reviews, as well as legacy product sales and historical systems and controls such as those governing legacy incentive schemes".

Richard Hunter, analyst at Hargreaves Lansdown, said the PPI provision was "disappointing".