THE continuing payment protection insurance (PPI) scandal took a heavy toll on Lloyds Banking Group in the third quarter, with a hefty provision of £1.8 billion for further claims leading to a steep fall in profits at the Bank of Scotland owner.

Lloyds, Britain’s biggest mortgage lender, took the hefty charge after receiving an “unprecedented level of PPI information requests” ahead of the claims deadline in August. It takes to nearly £22bn the amount set aside by Lloyds to meet complaints, the highest provision by any major UK bank.

The deluge of last-minute information requests received by the country’s biggest banks on potential claims led the financial regulator to warn this month that the mis-selling scandal would drag on well into next year. Royal Bank of Scotland dropped into the red last week after setting aside a further £900m in its third quarter to deal with the additional claims it expects to receive.

READ MORE: PPI claimants left waiting as banks swamped by complaints

Lloyds reported yesterday that its latest PPI charge, which it first flagged in September, led to its third-quarter profits dropping to £50m from £1.82bn for the same period last year.

The bank said underlying profit was down 12% to £1.82bn.That came as net interest income dropped by 2% to £3.13bn over the quarter compared with the three months to September 30, 2018.

Loans and advances to customers increased by £6bn over the quarter, taking the total for the year to September 30 £447bn, against £445bn at the same stage last year.

At the same time, total customer deposits increased to £419 bn from £418bn at June 30; total deposits were £422bn at September 30 last year.

READ MORE: Royal Bank chief: We can't draw a line under PPI scandal yet

The bank’s net interest margin, in essence the difference between how much it earns on loans versus how much it pays to savers, was 2.89%, in line with previously issued guidance of 2.9%.

The period saw it acquire the mortgage book of Tesco Bank for £3.7 billion, which will result in 23,000 residential mortgage customers switching to Lloyds-owned Halifax.

John Moore at stockbroker Brewin Dolphin, said: “PPI has reared its head again, this time delivering a £1.8 billion charge for Lloyds.  Aside from that, the bank’s net interest margin remains healthier than many of its peers, albeit slightly down on earlier in the year. Overall, it’s another resilient set of results from Lloyds and its track record on cost-cutting has helped set the bank apart from many of its competitors.

“While there is no mention of it in today’s statement, Brexit uncertainty continues to cast a shadow over UK banking; but Lloyds looks well place to contend with the challenges it presents.”

Lloyds chief Antonio Horta-Osorio said: “ I am disappointed that our statutory result was significantly impacted by the additional PPI charge in the third quarter, driven by an unprecedented level of PPI information requests received... However, our performance continues to demonstrate the resilience of our customer franchise and business model”.

Shares in Lloyds closed 1.4% lower at 56.8p.