Lloyds Banking Group has announced a whopping increase in its annual profit by more than 50 percent, thanks to higher borrowing costs. However, it also revealed that it has set aside £450 million for potential costs from a major investigation into past car finance selling practices.

The bank, one of the UK’s largest motor finance providers through its Black Horse brand, is currently under scrutiny.

In 2023, Lloyds reported a pre-tax profit of £7.5 billion, a massive 57 percent increase from the £4.8 billion made in 2022, exceeding analysts’ predictions.

This record-breaking profit for the group, which includes brands Halifax and Bank of Scotland and is the UK’s largest mortgage lender, was achieved as its underlying net interest income (the difference between what it earns from loans and pays out for deposits) rose by 5 percent to £13.8 billion.

However, the bank has earmarked a remediation charge of £450 million to cover potential costs related to the Financial Conduct Authority’s (FCA) investigation into historic car finance selling practices.

Last month, the FCA launched a review to determine whether customers could be entitled to compensation for being overcharged for car loans, following a surge in complaints.

The FCA has assured that if it discovers consumers have suffered due to widespread misconduct, it will ensure they receive compensation in an orderly and efficient manner.

Lloyds has stated that it’s too early to determine the extent of the compensation, but welcomes the watchdog’s investigation for clarity.

“There remains significant uncertainty as to the extent of any misconduct and customer loss, if any, the nature of any remediation action, if required, and its timing,” said the bank.

The £450 million provision, which includes estimates for costs and potential compensation, could vary once the FCA finishes its investigation. However, Lloyds’ chief financial officer, William Chalmers, emphasised that the car finance probe was “not like prior remediations”, when asked by reporters if he thought it showed any similarities to the PPI mis-selling scandal.

Lloyds had to pay billions of pounds to compensate customers who were mis-sold payment protection insurance from the mid-1990s. Meanwhile, the group’s chief executive Charlie Nunn said the bank was “focused on proactively supporting people and businesses through persistent cost-of-living pressures” last year.

It reached out to about 7.5 million customers to help with their financial situations over 2023, it said. More customers moved money into accounts with higher interest on their savings last year, but Lloyds said that trend slowed slightly during the final months of the year.