The UK financial group, which provides wealth management services, reported stronger profits for 2015 but has decided to trim bonuses.

Lloyds Banking Group, which provides services including private banking, today reported an underlying profit of £8.1 billion ($11.3 billion) for 2015, a rise of 5 per cent on a year before.

Net interest income was £11.5 billion, up 5 per cent, driven by further margin improvement to 2.63 per cent, the London-listed banking group said in a statement.

Operating costs fell to £8.3 billion despite additional investment and business simplification costs. At the end of last year, Lloyds had a cost/income ratio of 49.3 per cent, down by 0.5 percentage points.

The bank logged a statutory pre-tax profit of £1.6 billion (2014: £1.8 billion), with increased charges for payment protection insurance sale (banks have, in recent years, had to set aside heavy sums to compensate clients for mis-selling of PPI packages). Lloyds said a PPI provision of £4 billion includes an additional £2.1 billion in the fourth quarter of last year.

The bank said it had a strong balance sheet with a pro forma common equity tier one ratio of 13.0 per cent (2014: 12.8 per cent).

In its retail division, which includes wealth management services among other segments, Lloyds said underlying profit increased 9 per cent year-on-year to £3.514 billion. Net interest income increased 4 per cent. Margins increased by 11 basis points to 2.40 per cent, driven by improved deposit margin and mix, more than offsetting reduced lending rates.

Other income was down 7 per cent driven by current account transaction related income and regulatory changes, in particular, impacting the wealth business, the bank said.

Total costs increased 2 per cent to £4.573 billion, reflecting continued business investment and simplification to improve customer experiences and enable staff numbers to be reduced by 7 per cent in 2015.

Bonus scheme shrinks

Despite better underlying financial results in 2015, Lloyds said its "total bonus outcome" has reduced year-on-year to £353.7 million (from £369.5 million in 2014). This change includes a 26 per cent collective performance adjustment applied to the group's total bonus outcome, reflecting additional "conduct-related provisions relevant to the year which impacted negatively on profitability and shareholder returns". As previously announced, £30 million was deducted to recognise the effect of the bank falling short in how it handled complaints about PPI issues, the bank said.

As a percentage of pre-bonus underlying profit, the total bonus outcome has decreased to 4.2 per cent (from 4.5 per cent in 2014). Cash bonuses remain capped at £2,000 with additional amounts paid in shares and subject to deferral and performance adjustment. Average bonus awards across all colleagues are approximately £4,600, it said.