Lloyds Banking Group has revealed its yearly profit soared by more than 50% after being boosted by higher borrowing costs, but said it set aside £450 million to cover potential costs of a major review into historic car finance selling practices.

The banking group is in the spotlight as one of the biggest motor finance providers in the UK through its brand Black Horse.

Lloyds said it made a pre-tax profit of £7.5 billion over 2023, surging by 57% compared with the £4.8 billion made in 2022, and coming in ahead of analysts’ expectations.

It marks record high earnings for the group, which is Britain’s biggest mortgage lender and includes brands Halifax and Bank of Scotland.

It was achieved as its underlying net interest income, the difference between what it makes from loans and pays out for deposits, jumped by 5% to £13.8 billion.

But the bank said it set aside a remediation charge of £450 million to cover potential costs related to the financial regulator’s probe into historic car finance selling practices.

The Financial Conduct Authority (FCA) last month opened a review into whether people could be owed compensation for being charged too much for car loans, following a high number of complaints.

The FCA said if it finds that consumers have lost out because of widespread misconduct, it will make sure they get compensation in an orderly and efficient way.

Lloyds said it was too early to say what the scale of the redress could be, and that it welcomed the watchdog’s investigation to get 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,” the bank said.

The £450 million provision, which includes estimates for costs and potential compensation, could be more or less once the FCA completes its probe.

But Lloyds’ chief financial officer, William Chalmers, stressed that the car finance probe was “not like prior remediations”, when asked by reporters whether 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.