Lloyds Banking Group pushed into loss by PPI costs

The cost of compensating customers who were mis-sold payment protection insurance pushed Lloyds to a £3.3bn loss for the six months to 30 June.

The bank announced in May that it was putting aside £3.2bn to pay customers who had been mis-sold.

Excluding one-off expenses, the High Street bank reported a decline in pre-tax profit to £1bn from £1.6bn in 2010.

Lloyds, 41%-owned by the taxpayer, recently announced a cost cutting programme including 15,000 job losses.

The bank is currently looking to sell of 632 branches as part of an agreement with EU regulators following its government bailout and the takeover of HBOS (Halifax Bank of Scotland).

Lloyds confirmed it had received "a number of credible initial approaches" for the branches and hoped to have a buyer by the end of the year.

Overall the bank said it had cut its impairment costs for bad loans by 17% to £5.4bn.

However, the Irish debt crisis saw the bank's international unit report a £2.1bn loss due to the risks of its Irish debt not being paid back.

The impairment charge on the debt was, however, lower than the end of 2010.

New chief executive Antonio Horta-Osorio said the bank faced difficult conditions.

"Ongoing challenges of economic and regulatory uncertainty, the effects of which, including subdued loan demand, financial market volatility, and increasing regulatory capital and liquidity requirements, are reflected in these results," he said.

Despite this the bank said it was on track to meet its Project Merlin commitment to lend more to businesses.

It said it had lent £21.2bn in the first half of the year, of which £6.7bn went to small and medium-sized companies.