SHARES in Lloyds Banking Group surged nearly five per cent as its chief executive struck an upbeat tone on the UK economic outlook – in contrast to its peers Royal Bank of Scotland and HSBC.

Investors piled into shares in the Bank of Scotland owner after it pledged to return £4 billion of capital to shareholders. It proposed a five per cent rise in the total dividend to 3.21p per share alongside a share buyback worth £1.75bn, signalling a total return of up to £4bn.

After dividends and share buybacks, the bank said its capital position had been maintained, with a common equity tier 1 (CET 1) ratio of 13.9%.

Shares in Lloyds price rose despite profits at the bank failing to reach analysts’ forecasts and the institution setting aside a further £200 million to cover claims for PPI (payment protection insurance) mis-selling in the fourth quarter.

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Lloyds, which has paid out more in PPI claims than any other major UK bank, increased its PPI provision by £750 million during 2018. This was down compared with the £1.65bn set aside for PPI claims year, but took the bank’s total provision to £19.4bn since the scandal first erupted.

The bank reported a 13% rise in statutory profit before tax to £5.96bn for 2018, which came amid an increase in income and drop in operating costs. Net profits at the bank rose by 24 per cent to £4.4bn, which Lloyds said reflected lower remediation charges.

A report by news agency Reuters said analysts had forecast net profits of £4.6bn, based on consensus figures provided by the bank.

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While HSBC this week joined Royal Bank of Scotland in setting aside millions of pounds to deal with bad debts rising in the event of a disorderly Brexit, Lloyds boss Antonio Horta-Osorio praised the resilience of the UK economy. This was despite Lloyds’ heavy exposure to the domestic economy, which Royal Bank chief Ross McEwan has previously said will be tipped into recession should there be a no-deal Brexit.

The UK is scheduled to leave the European Union (EU) on March 29 but the continual political wrangling means there it still no sign of Parliament approving a withdrawal deal.

Mr Horta-Osorio said: “Over 2018 the UK economy has proven itself to be resilient with record employment and continued GDP growth. Although the near term outlook for the UK economy remains uncertain, our strategy continues to deliver for our customers.

“I remain confident that with our unique business model and market leading efficiency we can continue to increase investment in customer propositions and grow our leading digital bank, whilst at the same time delivering strong financial performance and market leading returns.”

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Meanwhile, Lloyds said it had completed its compensation review of the 71 business customers affected by the HBOS Reading scandal. The review followed the conclusion of a criminal trial which resulted in a number of individuals, including two former HBOS employees, being convicted of conspiracy to corrupt, fraudulent trading and associated money laundering offences. The offences occurred before the acquisition by Lloyds of HBOS in 2009.

Lloyds said 96 per cent of compensation offers made within the review have been accepted, meaning £78m of compensation has been accepted out of the £96m offered.

It noted yesterday that it provided a further £15m in the year ended December for customer settlements, raising the total amount provided to £115m. The bank told the City that it is “nearing the end of the process of paying compensation to the victims of the fraud”.

John Moore, senior investment manager at stockbroker Brewin Dolphin Scotland, said: “Lloyds’ is in a good position, but the question remains what’s next for the bank. With PPI complaints diminishing and costs coming down ahead of expectations, Lloyds could soon have capital coming out of its ears looking for a useful purpose.”

Shares closed up 4.7%, or 2.76p, at 61.13p.