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* Analysts expect Lloyds to set aside another 500 mln stg
* Provision would take total to 10.3 bln stg
* Lloyds expected to report 20 pct rise in H1 profit
By Matt Scuffham
LONDON, July 24 (Reuters) - Lloyds Banking Group isexpected to set aside another 500 million pounds ($849 million)to compensate customers mis-sold loan insurance, bringing itstotal bill so far to over 10 billion pounds.
Analysts say Lloyds will detail the extra charge nextThursday alongside its first-half results, which are expected toshow a 20 percent increase in underlying profit to 3.5 billionpounds ($6 billion).
British banks have set aside more than 20 billion pounds intotal to compensate customers mis-sold payment protectioninsurance (PPI). The policies were meant to cover repayments ifcustomers fell ill or lost their jobs but were often sold topeople who did not need them or would be ineligible to claim.
Analysts at Deutsche Bank said that, by the end of lastyear, Lloyds had dealt with only 40 percent of customers who hadbeen sold PPI since 2000, making it impractical to rule outfurther charges.
In a note previewing the results, Deutsche Bank forecasts afurther 500 million pounds will be set aside by Lloyds in thesecond quarter, bringing its total bill to 10.3 billion pounds.Keefe, Bruyette & Woods analyst Mark Phin also expects Lloyds totake an additional PPI charge of 500 million pounds.
Like part-nationalised rival Royal Bank of Scotland,Lloyds is expected to say that it has benefited from improvingeconomic conditions which are resulting in less borrowers havingdifficulty paying back loans.
However, also in common with RBS, its progress is beinghindered by the fallout out from past misconduct. Lloyds isexpected to be fined up to 300 million pounds next weekfollowing an investigation by U.S. and UK regulators into thealleged manipulation of the Libor benchmark interest rate.
Those factors threaten to overshadow a strong second-quarterperformance that should strengthen Lloyds' case for re-startingdividends and boost the government's chances of selling itsremaining shares before the next election in 2015.
Lloyds, which was one of the highest-dividend paying stocksin Britain before the financial crisis, has said it will applyto Britain's financial regulator to begin paying dividends againin the second half of the year.
The move is seen as key to the government's prospect ofselling some of its remaining shares to retail investors, acommitment made by Finance Minister George Osborne.
The bank, which owns Bank of Scotland and is registered inEdinburgh, may reiterate potential risks it faces if Scots votefor independence from the rest of the United Kingdom in aSeptember referendum. It has previously said that scenario wouldaffect its cost of funding, taxes and compliance costs.
($1 = 0.5885 British Pounds) (Reporting by Matt Scuffham; Editing by Pravin Char)
