THE ONGOING cost of rectifying past mistakes continues to weigh on Bank of Scotland owner Lloyds, which posted a statutory profit of £2.5 billion for the first half of 2017 despite underlying profits rising by eight per cent to £4.5bn.

In its first half-year report since the Government exited its position in the group in May, Lloyds said that while the statutory profit figure had risen by four per cent year on year as a result of growth in underlying profits, this was “partly offset by increased conduct provisions”.

In addition to setting aside £100 million in the first quarter to compensate victims of a fraud that hit television presenter Noel Edmonds, the bank has set up a £283m redress scheme to reimburse 590,000 customers who incurred unfair fees when they fell into mortgage arrears.

The greatest increase in its conduct provision relates to payment protection insurance (PPI) claims, though, with the bank making an additional provision of £700m in the second quarter.

This means the bank set aside over £1bn over the full six months to settle PPI claims, bringing the total amount it has provided since the scandal was uncovered to £18.1bn.

Chief financial officer George Culmer said it was “disappointing” to have to raise the PPI provision further, but added that the increase reflects the fact that it was announced in March that the deadline for making claims had been set for August 2019. It had initially been anticipated that the Financial Conduct Authority would set the deadline for spring 2018.

“We had previously assumed a flat level of about 7,700 new cases per week but it’s been about 9,000,” Mr Culmer said.

“We’ve got to spend £100m per month and we’ve taken that and reflected it forward. That covers us between now and August 2019.”

The fraud that affected a firm run by Mr Edmonds took place in an HBOS branch in Reading, where between 2003 and 2007 over 60 small business owners that had run into financial difficulty were referred to a consultancy firm before having their assets stripped.

Earlier this year six people, including two former HBOS employees, were jailed for their role in the fraud, but so far Lloyds has only settled compensation claims with seven former customers.

Chief executive Antonio Horta-Osorio said that while the bank wanted to provide for “swift and appropriate compensation for victims”, some people were “taking some time to provide us with the information we need to make their offers”.

The bank has made one-off escalation payments of £35,000 to each of the victims so they can take more time over filing their claims.

While the results indicate that the end is in sight for some of the claims against the bank, Mr Horta-Osorio said there would never be a time when the bank would be entirely claim free.

“We have a commitment as a management team of putting legacy charges behind us as soon as possible,” he said, adding that the bank “needs to reduce the gap between underlying profit and statutory profit”.

“There will always be redress costs,” he added. “In the retail business there will be mistakes that are made and there will always be an appropriate redress charge [although] that will be much smaller than the current position.”

Income at the group was up four per cent to £9.3bn, £5.9bn of which came from interest.