LLOYDS Banking Group has revealed that a mammoth payment protection insurance (PPI) bill has sent annual profits tumbling.

The lending giant, which acquired Bank of Scotland in 2009, lowered two key targets of profitability for 2020 as its retail margins come under pressure amid low interest rates and intense price competition. Its annual results showed that pre-tax profits slumped by 26% to £4.39 billion for 2019 after facing a £2.5bn PPI bill.

An annual report, published alongside the results, revealed that chief executive Antonio Horta-Osorio’s pay fell by 28% to £4.73 million as a result of the drop in profits, while the wider staff bonus pool was cut by 33% to £310.1m.

The banking giant also outlined plans to reduce Horta-Osorio’s maximum total payout – including controversial pension payments – by 29% for 2020 and beyond as part of an executive remuneration overhaul. The chief executive – who has faced criticism over his pay in the past year – will see his pension drop to 15% of basic salary, down sharply from 33%, as part of efforts to narrow the gap between executive pay and the wider workforce. The lower pension payment represents a cut of almost £230,000.

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Horta-Osorio insisted the results for 2019 were “resilient”, with underlying profits down by 7% to £7.5bn. He said: “In 2019 the group has continued to make significant strategic progress while delivering solid financial results in a challenging external market.

“Throughout 2019, UK economic performance has remained resilient in the face of significant political and economic uncertainty, supported by record employment, low interest rates and rising real wages. Although uncertainty remains given the ongoing negotiation of international trade agreements, there is now a clearer sense of direction and some signs of an improving outlook.”

But the group flagged that it expects to report a return on tangible equity of between 12% and 13% in 2020, against previous targets of 14% to 15%. Its net interest margin – another measure of profitability – is also set to drop this year as challenging retail banking conditions take their toll.

Shares rose 3% despite the lowered targets, with a 5% rise in the dividend payout for investors.

The group said it did not set aside any further PPI charges in the final three months of 2019 after a £1.8bn bill in the third quarter amid a rush of claims ahead of the August deadline. It said it took “some comfort” from this that current provisions will be enough to draw a line under the saga.

Horta-Osorio gave assurances that he was “absolutely committed” to seeing through the current three-year strategy for the bank despite speculation swirling that the bank has been stepping up its CEO succession planning.