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Lloyds Banking Group has set aside another £1bn to cover the cost of insurance mis-selling and the treatment of mortgage customers.

Of that, £700m will cover payment protection insurance (PPI) claims and £283m will be used to repay about 590,000 mortgage holders.

The bank had already put away an extra £350m this year to cover PPI costs.

It came as Lloyds posted half-year pre-tax profits of £2.5bn, 4% higher than last year.

The results are the first since the government sold its stake in the bank.

The repayment to mortgage customers comes after they were charged from 2009 to 2016 for going into arrears.

The Financial Conduct Authority had been investigating the issue, concluding that the charges should not have been applied as the bank did not always do enough to understand customers' circumstances and check that their arrears payment plans were affordable and sustainable.

The FCA says Lloyds will refund all fees charged for arrears management and broken payment arrangements, and it will also pay any litigation fees that were applied unfairly to customers who were involved in related legal action.

On top of that, it will also offer payments for potential distress and inconvenience.

The bank will itself approach customers to prompt them to make a claim.

Fraud probe

Lloyds became the UK's biggest force in personal banking as a result of its absorption of HBOS - the former Halifax and Bank of Scotland - at the height of the financial crisis and was bailed out by the government at a cost of about £20bn.

Lloyds is also having to compensate some of its small business customers, who suffered as a result of widespread fraud at its former HBOS branch in Reading.

Victims saw their businesses taken over by so-called specialists recommended by the branch between the years 2003-07.

These "specialists" destroyed a number of the businesses, squandering the money they made on prostitutes and luxury holidays.

Lloyds is in the process of paying compensation to the victims of the fraud, for which it set aside £100m in the first quarter.

It is also currently undertaking a review of what happened.

Crisis legacy

It is the PPI mis-selling scandal, though, that dwarfs all others.

Lloyds has now increased provisions for claims some 17 times. Its chief financial officer, George Culmer, said it was "disappointing" to be having to do it again.

He also offered no guarantee that there would be no further increases in provisions, although he did say the number "looked appropriate in terms of covering us between now and August 2019".

Lloyds alone has now set aside £18bn. In total, UK lenders have been forced to set aside more than £30bn to cover PPI compensation costs.

PPI became controversial after it was revealed that many customers had been sold it without understanding that the cost was being added to their loan repayments.

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The bank's chief executive, Antonio Horta-Osario, said of the various pots of money set aside for customer redress: "We have a commitment as a management team of putting these legacy charges behind us as soon as possible."

He admitted, though, that there would "always be redress costs" when running a banking business.

'Strength'

Laith Khalaf, senior analyst at stockbrokers Hargreaves Lansdown, said that despite the size of the provisions for the various types of misconduct, Lloyds' performance was satisfactory.

"It's a sign of Lloyds' strength that it can shrug off £1.6bn of misconduct charges to post a strong rise in profits," he said.

"Overall, this is a strong set of numbers from Lloyds, blighted, but not overshadowed, by misconduct costs. The government has exited the bank and is now no longer selling stock in the market, which removes a significant downward pressure on the share price."

The government had been steadily offloading its Lloyds stake, resulting in about £21bn being returned to the taxpayer.

The government still owns 73% of Royal Bank of Scotland, which was rescued with £45.5bn of taxpayers' cash during the crisis in the world's biggest bank bailout.