Lloyds' profit below hopes after new mis-selling charge

* Sets aside 1.4 bln pounds for PPI compensation costs

* New (KOSDAQ: 160550.KQ - news) charge takes total bill to 13.4 billion

* H1 statutory profit 1.2 bln pounds vs 1.9 bln forecast

* Bank will consider one-off dividends, buybacks (Adds comments from chief executive, finance director)

By Matt Scuffham and Steve Slater

LONDON, July 31 (Reuters) - Lloyds Banking Group set aside a further 1.4 billion pounds ($2.2 billion) to compensate customers mis-sold loan insurance, pushing its first-half profit below analysts' forecasts.

The charges take Lloyds' bill for mis-selling loan insurance to 13.4 billion, more than any other bank, and overshadowed plans by the bank to return excess capital to shareholders through special dividends or share buybacks.

The mis-selling of payment protection insurance (PPI) by banks and other financial services companies is Britain's most expensive consumer finance scandal and has cost banks and other financial services firms about 28 billion pounds.

It is one of a number of scandals, including the attempted rigging of benchmark interest and foreign exchange rates, which have undermined public trust in Britain's banks.

Lloyds reported a first-half statutory profit of 1.2 billion pounds, up 38 percent from a year ago but well below analysts' expectations because of the PPI charge. The consensus forecast was 1.9 billion, according to data provided by Lloyds.

Lloyds, which is Britain's biggest retail bank and sold more of the policies than rivals, said the charge was disappointing and reflected a higher-than-anticipated rate of complaints. It said complaints had declined but not at the rate expected.

The bank, which employs 7,000 staff to process PPI complaints, expects to see a significant decease in complaints in the next 18 months. But it warned that if complaints remain at the same level, it will need to set aside a further 1 billion pounds at the end of the year and another 2 billion next year.

PROPER TIMELINE

Britain's financial regulator said in January it was considering imposing a deadline on customers claiming compensation to potentially draw a line under the scandal.

Senior banking executives have said the payouts restrict their ability to lend to British households and businesses. They are also angered by the proportion of complaints, often by claims management firms, which are found to illegitimate.

"We think that a proper timeline done in a fair way would be a positive thing to do," Lloyds Chief Executive Antonio Horta-Osorio told reporters.

The bank also set aside 435 million pounds for other misconduct issues, including 175 million for complaints relating to packaged bank accounts and a 117 million fine by the Financial Conduct Authority relating to aspects of its PPI complaint handling process.

Lloyds said it would consider returning capital to shareholders through one-off dividends or share buybacks from the end of this year if its core capital is higher than 12 percent plus the equivalent of one year's dividend payment, which would take it to around 13 percent.

That could make its stock more attractive to retail investors ahead of a possible sale of shares by the government next year, Horta-Osorio said.

The British government has cut its stake in Lloyds to less than 15 percent from 43 percent and British finance minister George Osborne plans to sell some of the remainder to private shareholders.

Shares (Berlin: DI6.BE - news) in Lloyds were down 0.4 percent at 0800 GMT.

($1 = 0.6408 pounds) (Additional reporting by Steve Slater; editing by Sinead Cruise and David Clarke)