Compensating customers who were mis-sold insurance pushed Lloyds Banking Group £3.3 billion into the red in the first half of 2011.
The British bank said impairment charges on bad loans fell by 17% to £5.4 billion, but the improvement would have been much better had it not been for a further deterioration in Ireland.
Losses on bad loans at its Irish operations hit £1.8 billion in the first six months of the year, 14% worse than the figure of just under £1.6 billion reported a year ago. Lloyds formerly owned Halifax and Bank of Scotland (Ireland) here.
Overall, the Lloyds loss was broadly as expected and the bank reiterated its full-year targets.
Excluding the £3.2 billion Lloyds had already earmarked to cover mis-selling liabilities, the bank's adjusted pre-tax profit was £1.1 billion, down from £1.6 billion a year earlier.
Despite sticking to its targets for the full year, Lloyds said it was monitoring economic conditions closely, particularly in the UK and euro zone. Lloyds is 41% owned by the British government after a credit crisis bail-out.
The bank confirmed it had received 'a number of credible initial approaches' for the 632 branches it is being forced to sell by EU regulators and hopes to have a buyer by the end of the year.
