Britain’s state-rescued bank Lloyds said today it will take an extra hit of almost £2.0 billion to cover mis-selling claims, but forecast a “small” annual profit.

Lloyds, which is 33-per cent owned by the taxpayer, added it would seek to resume shareholder dividend payments in the second half of this year, and said it was preparing for the government to sell more of its stake.

Lloyds Banking Group said it will take a provision in the fourth quarter of £1.8 billion for claims relating to the mis-selling of payment protection insurance, and £130 pounds relating to the mis-selling of interest rate hedging products to small businesses.

“The PPI provision increase is principally based on the group’s revised expectations for complaint volumes, uphold rates, and related administrative costs,” it said.

That takes the group’s total bill for the PPI scandal, which has blighted Britain’s banking sector, to almost £10 billion.

Lloyds revealed the news in a trading update issued before annual results that are due on February 13.

The bank also forecast it would make a “small” statutory profit in 2013, while it expected to beat City expectations by posting an underlying profit of £6.2 billion.

It added: “The group can also confirm that ... preparatory work including the preparation of certain documents required for a possible future sale of shares in Lloyds Banking Group to the public, has commenced.”

In September, the coalition government started the process of selling down its stake by offloading 6.0 per cent to institutional investors for £3.2 billion.

“Our significant progress in delivering sustainable improvements in our capital position and our profitability, despite legacy issues, is testament to the strength of our business model and the commitment of our people, and has enabled the UK government to start to return the bank to full private ownership,” said chief executive Antonio Horta—Osorio.

“We expect to apply in the second half of 2014 to restart dividend payments and to deliver progressive and sustainable payments to shareholders thereafter. This will be another important step in our journey to rebuild trust and confidence in our group.”

Lloyds had last paid a shareholder dividend in 2008, just before it received a £20-billion bailout by the government at the height of the global financial crisis.

In morning deals, Lloyds’ share price sank 2.55 per cent to 81.18 pence, topping the losers board on the FTSE 100 index, which was 0.07 per cent higher at 6,514.98 points.

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