LLOYDS Banking Group has said its bill for selling Lloyds TSB Scotland and other businesses could rise by £300 million to £1.6 billion after the collapse of the sale to Co-operative Bank, as the group recorded a near tripling in underlying first quarter profit to £1.5bn.

Lloyds, which bought Halifax Bank of Scotland (HBOS) in 2009, credited a further fall in bad debts and the success of its cost-cutting simplification plan for the surge in earnings which were well ahead of the City's expected £900m profit.

Taking into account asset sales, the 39% taxpayer-owned bank posted a statutory pre-tax profit of £2bn for the three months, up from £280m for the same period last year.

Having sliced £1bn off running costs since summer 2011, it increased its savings target by another £200m for 2013 but said this would not lead to further job cuts.

The resumption of dividend payments will have to await the completion of regulatory changes, it cautioned.

Chief executive Antonio Horta-Osorio said: "Despite the challenging economic environment we are making significant progress and are ahead of our plans to transform the business." He highlighted the "substantial improvement in profitability", driven by a 40% fall in loan impairments and a 6% drop in costs in the past 12 months.

Finance director George Culmer said Lloyds had anticipated that disposing of the 632 branches in the Verde portfolio, including 185 Lloyds TSB Scotland outlets, would cost about £1.3bn before tax.

But he said that Co-operative Bank's decision last week to pull out of its £750m purchase of the portfolio will add to the bill.

"We are going to have to make it a fully self-standing bank. There is likely to be an additional spend. We can probably say it will be £200m to £300m," he added.

Mr Culmer added: "A lot of the same people who did the HBOS integration will tell you separation is more difficult than the original integration. Setting up a stand-alone bank with its own infrastructures, its own staff, its own core functions is an expensive process."

But he said the extra costs would be offset to some extent by income from the Verde business branches until its sale, which Lloyds now expects to float in mid-2014.

It will approach the European Commission in September to request an extension of the November 2013 deadline imposed when it demanded the sale as a condition of its £20bn state bailout.

Lloyds said it expected total costs for 2013 to be £9.6bn, rather than the £9.8bn it had anticipated. Mr Culmer said the reduction was due in part to the sale of a stake in St James's Place, the financial advice business in which Lloyds has a holding, and from trimming costs across the business.

"We would not expect to make any further job cuts," he said.

Lloyds said resumption of dividend payments would only occur when there was certainty on regulatory changes including plans to force banks to ring-fence their retail banks from their investment banking interests.

"In the meantime all we can do is continue to deliver the strong results," Mr Culmer said.

Mr Horta-Osorio said that Lloyds had increased net lending to corporate clients over the quarter. He said: "We are happy this happened in the quarter, ahead of plan."

Within the corporate business, net lending to small businesses was up 4% while the wider market contracted, the bank said.

The bank made no further provision for compensation to customers mis-sold payment protection insurance (PPI) having put aside £5.3bn previously. The bank said the volume of complaints had fallen to 15,000, down 28% on the last quarter of 2012.

It spent £586m settling PPI claims, including £180m of administration costs in the quarter. The bank said. "As previously forecast we continue to expect monthly costs to decline in the second half of the year."

Mr Culmer said the bank was still waiting for guidance from the City regulator about how much capital it would be required to hold. He added: "What matters is that we are taking all the necessary action to grow the capital base of this business."

Lloyds said it had not held talks with the Government over the sale of the taxpayer's stake.

Gary Greenwood, analyst at Shore Capital, said the results were "much better than we had expected".