State-backed Lloyds Banking Group's bill for the payment protection insurance scandal has topped £13 billion after it took another £1.4 billion hit over the scandal.
Lloyds expects complaints to start to tail off but warned that if they did not it would have to add an extra £3 billion to the sum by the end of next year.
The PPI provision announced today was part of a total £1.8 billion set aside for conduct issues as the lender continues to be haunted by past misdeeds.
Shares fell as this overshadowed an improved half-year performance. Pre-tax profits rose 38% to £1.19 billion despite the hit, and a £660 million charge related to the sale of its stake in TSB to its new owner, Spain's Banco de Sabadell.
Chief executive Antonio Horta-Osorio said the addition of a further PPI provision was "disappointing" but that the bank was able to take the action "from a position of financial and capital strength". Complaints had fallen less than expected.
The total amount set aside for the scandal has now reached £13.4 billion, of which £2.2 billion has yet to be spent. The total includes more than £2 billion in administrative costs with 7,000 staff employed to process complaints.
Lloyds has also had to go back over cases it previously rejected.
It now expects to handle total complaints over the scandal of 3.9 million, of which 700,000 are yet to be received. It has upheld 78% so far, paying on average £1,935 per policy.
Finance director George Culmer said Lloyds was assuming a "significant decrease" in complaints volumes over the next 18 months.
But he said if they remained flat in the second half of this year it would need to add an extra £1 billion provision, adding that "a similar level of provisioning would be required for each six months of flat complaint volumes in 2016".
The bank took a £435 million hit for other misconduct provisions in the first half, including £117 million for a previously-announced settlement with the Financial Conduct Authority (FCA) over its handling of PPI complaints.
It also included £175 million set aside over the mis-selling of packaged bank accounts – products where customers pay a fee in exchange for benefits – though it denied that this area might become "the next PPI scandal".
Lloyds cheered its army of small investors with a 0.75p interim dividend – amounting to £535 million – after making its first shareholder pay-out since 2008 following full-year results earlier this year.
The bank also said that having now resumed dividend payouts it will consider using any excess capital to distribute special dividends.
This is expected to make the stock more attractive for a Tell Sid style sell-off to ordinary retail investors that is being planned, likely to come at the end of the continuing return to the private sector.
Mr Horta-Osorio said Lloyds was on course to be fully privatised over the next year. The Treasury's stake in the lender – rescued by the taxpayer at the height of the financial crisis – has shrunk to less than 15% in recent months.
The chief executive said: "Today's results demonstrate the strong progress we have made in the first half of the year.
"We remain focused on our aim to become the best bank for customers and shareholders while at the same time supporting the UK economy."
He said the bank continued to benefit from the upturn in the UK economy as it offered improved full-year guidance on margins and said it expected lower charges from bad loans.
The chief executive added that the lender was undergoing a "digital revolution" with more than 11 million online customers and nearly six million using its mobile services.
Brenda Kelly, head analyst at London Capital Group, said: "The introduction of a dividend is well timed and will make it much easier for the government stake disposal in due course.
"PPI claims remain a thorn in the side of the bank which has set aside a further £1.4bn for future litigation. This brings the total to £13m, the highest of all the UK banks."