BANKING group Lloyds TSB warned it had seen a higher percentage of bad debt in the UK as more of its customers fell into repayment difficulties.

The group said its overall performance was in line with market expectations, but its retail banking operation faced pressure from lower levels of growth in consumer lending and further deterioration in credit quality.

As a result, it expected bad debt provisions as a percentage of average lending would be higher in the second half of this year than it was last year.

This, the bank said, reflected some further deterioration in credit quality as more customers, with higher levels of indebtedness experienced repayment difficulties.

Across the group, Lloyds said it would deliver revenue growth in excess of cost growth in all of its divisions. That will help the bank to meet the consensus of analysts' forecasts for full-year profits of £3.31bn.

A comparison with last year is not possible because of accounting changes.

Lloyds shares were in positive territory yesterday, even though it warned it would take a one-off charge of £300m.

The charge is in part to cover the further cost of payments to customers who were mis-sold mortgage endowment policies.

The £300m also included a sum to bolster its life insurance reserves as life expectancy rises.

Nic Clarke, an analyst at Charles Stanley stockbrokers, said: "In recent years, Lloyds TSB's earnings have been volatile and therefore another set of results that show progress towards sustained earnings growth will be looked upon favourably by the market.

"However, news of further provisions for customer redress and reserve strengthening and the increase in the level of UK retail banking impairment provisions (bad debts) will not be so warmly received."