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* Total charge for PPI mis-selling rises to 11.5 bln stg
* Analysts at Citi expect further 1 bln stg charge
* Lloyds confirms to close 200 branches, cut 9,000 jobs
* FD says confident of passing UK stress test
* Says confident Lloyds will pay dividend for 2014 (Adds comment from finance director on charges)
By Matt Scuffham and Steve Slater
LONDON, Oct 28 (Reuters) - British bank Lloyds hastaken another 900 million pound ($1.5 billion) charge tocompensate customers mis-sold loan insurance, delivering afurther blow to the lender which only narrowly passed Europeanhealth checks on the sector's finances.
The new charge announced on Tuesday took the bank's totalcost to cover the mis-selling of payment protection insurance(PPI) to 11.3 billion pounds, more than any other bank and closeto half of the total bill for the industry.
The policies were meant to cover repayments if customersfell ill or lost their jobs but were often sold to people whodid not need them or would be ineligible to claim.
Analysts at Citi said they expected Lloyds Banking Group Plcto set aside another 1 billion pounds for PPI compensation nextyear and Lloyds Finance Director George Culmer told reporters ona conference call he could not rule out further increases.
Culmer said complaints about PPI had risen by "about 2 or 3percent" in the third quarter from the previous three months,although he said they were still down 18 percent on the year.
Lloyds said that, if it were to see a similar level ofcomplaints in the fourth quarter as in the third, the requiredprovision would increase again by 600 million pounds. However,Culmer said complaints had fallen by about 8 percent in thefirst three weeks of October.
"It's certainly reassuring to see that it's started to fallagain," he said.
The new mis-selling charge comes two days after the bank, 25percent-owned by the British government, only narrowly passed atest set by regulators to assess whether banks have enoughcapital to weather another economic crash.
Lloyds, which was the worst performing British bank in theEuropean stress tests, faces a further test by the Bank ofEngland (BoE) in December which will measure its resilienceagainst scenarios including a 35 percent decline in house pricesand a rise in interest rates to 6 percent.
The result of that test will be key to whether the bank iscleared by Britain's financial regulator to pay its firstdividend since it was rescued by a 20.5 billion pound governmentbailout during the financial crisis of 2007-2009.
GOOD POSITION
"Whilst we do not see failure as having capital-raisingimplications, we no longer expect Lloyds to pay a 2014dividend," said Macquarie analyst Ed Firth.
Culmer said he expected Lloyds to pass the BoE stress testand remained confident the bank would be cleared to pay a"modest" dividend for 2014.
"The discussions look at earnings, they look at capital andthey look at stress tests. We consider ourselves to be in a goodposition with regards those three criteria as we go into thosediscussions," Culmer said.
Shares in Lloyds were down 1.8 percent at 1510 GMT.
Lloyds also confirmed its previously reported plan to axe9,000 jobs in the next three years and to close 200 branches,partly offset by the opening of 50 new ones. The net reductionequates to cutting its total branch network by about 6 percent.
Chief Executive Antonio Horta-Osorio said he expectedcompetitors to shut more branches during the period and forLloyds to subsequently grow its market share.
As part of a strategic plan for the next three yearsunveiled alongside third-quarter results, the bank said it wouldinvest 1 billion pounds in digital technology. It plans to lendan additional 30 billion pounds across Britain over that period,aiming to grow in areas where it is under-represented, includingconsumer lending and financial planning and retirement.
Lloyds reported an underlying profit of 2.2 billion poundsin the quarter, up 41 percent from a year ago, as losses frombad debts fell sharply. Statutory profit, or pretax profitwithout one-offs, in the latest quarter was 751 million pounds.
Horta-Osorio warned that tougher capital requirements on UKbanks, expected to be announced on Friday, could result in thecost of home loans rising.
The Bank of England is expected to impose a "leverage ratio"of between 4 and 5 percent, higher than the 3 percent itcurrently applies. That means a bank would have to hold between4 and 5 pounds for each 100 pounds it lends.
(1 US dollar = 0.6205 British pound) (Editing by Mark Potter and David Holmes)
