Lloyds Banking Group reported losses of £3.3 billion in the first half of the year, as provisions for compensating payment protection insurance (PPI) victims dented its balance sheet.

The part state-owned bank said back in May it was setting aside £3.2 billion to ensure it had the funds to pay customers who had been mis-sold the product.

Excluding the PPI scandal's effect, pre-tax profit at the bank was £1.1 billion in the six months to 30 June, down from £1.6 billion in 2010.

The bank, which is the largest mortgage lender in the UK, said it was on track to deliver its full-year contribution to the Merlin lending agreement. In the first half it has committed £21.2 billion of gross lending, of which £6.7 billon is for small and medium enterprises.

Loans and advances to customers were down 1 per cent in the first half compared to same period last year at £587.8 billion. Customer deposits were up 2 per cent at £399.9 billion, from £393.6 billion a year earlier.

Its core tier one capital ratio had also declined from 10.2 per cent in the first half last year to 10.1 per cent this year.

Lloyds said there was no change to its 2011 guidance and the financial targets set out in its strategic review back in May.

Group chief executive, Antonio Horta-Osorio, said: 'We delivered a resilient first half performance, despite the ongoing challenges of economic and regulatory uncertainty, and we have made substantial progress in restructuring and de-risking the group.

'I expect the actions we are taking, as detailed in our strategic review announcement, to enable us create a high-performance organisation over time and deliver the best from our franchise for both our customers and shareholders.'