The "bad bank" created to manage the assets of failed lenders Northern Rock and Bradford & Bingley after the financial crisis has set aside more funds to cover mis-sold payment protection insurance (PPI).
UK Asset Resolution, set up in 2010 to oversee the assets of the collapsed banks, said it will put aside an extra £44.1 million after experiencing higher than expected payments.
It comes after the City watchdog ramped up its campaign to raise awareness of the August 2019 deadline for final claims.
The Financial Conduct Authority recently launched an advertising campaign featuring actor Arnold Schwarzenegger.
The bank, owned by the Treasury, is also on the way to clearing its debts after repaying another £6.3 billion in state loans. This means 92% of government loans have been repaid.
UKAR said it has cut the balance sheet by another £6.2 billion to £13.6 billion, bringing the total reduction to £102.2 billion since its formation eight years ago.
The bank also posted a sharp drop in profit due to the hit from PPI and a reduction in mortgage balances.
Pre-tax profit decreased to £49.5 million in the six months to September 30 compared with £216.8 million in the same period a year earlier.
Chief executive Ian Hares said: "In the first half, we repaid the remaining FSCS (Financial Services Compensation Scheme) debt and agreed the sale of a portfolio of equity release mortgages.
"These are major steps towards realising our objective of reducing the balance sheet while continuing to maximise value for the taxpayer."
UKAP sold £5 billion of Bradford & Bingley assets to an investor group led by Barclays earlier this year and an £860 million mortgage portfolio to Rothesay Life.
The Government recently reduced its stake in Royal Bank of Scotland to 62% from 71%, while Lloyds Banking Group was fully returned to private hands last year after both lenders were bailed out during the financial crisis.
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