Part-nationalised Lloyds Banking Group said today that it narrowed its losses to £570m sterling in 2012 from £3.5 billion the previous year.

It said underlying profit rose to £2.6 billion in 2012 from £638m a year earlier.

Lloyds said it was setting aside £1.2 billion to cover loan losses in Ireland last year.

That is substantially less than the £3.2 billion loan impairment charge it had reported in 2011. 

The bank said that the increase in new impaired Irish loans slowed from 4.1% to 1.6% in 2012.

It added that by the end of December, its Irish loan book had shrank from £24.8 billion to £19.5 billion. 

It emerged today that the bank's chief executive Antonio Horta-Osorio will be paid a deferred shares bonus of £1.5m for 2012, while staff will share a total pot of £365m.

Lloyds, 41% owned by the UK government, said it would award the chief executive the shares, deferred until 2018, if the price stayed above 73.6 pence for a period of time or the government sold at least a third of its holding for more than 61 pence per share. Lloyds shares closed at 54.5 pence in London yesterday.

Horta-Osorio said Lloyds was ahead with its revival plan and expected a substantial reduction in impairments this year and a corresponding increase in underlying profit.

Britain's biggest retail bank set aside another £1.5 billion to compensate customers mis-sold payment protection products, taking its bill for that to £6.8 billion.

It also set aside £400m more for compensation on interest rate swaps. It marked the fourth attempt by Lloyds to provision for expected PPI compensation and it has paid out far more than any other bank.

PPI policies were meant to protect borrowers who found themselves out of work because of sickness or redundancy but were often sold to customers who did not want or need them.