Shares in the lender were down 1.4% at 0920 GMT as analysts questioned whether the cash set aside for potential compensation for customers claiming they were overcharged on car loans would be enough.
In a messy set of earnings for 2023, the bank's profit was boosted by an unexpectedly light charge for bad loans - despite Britain entering a recession in the second half of 2023 - of 308 million pounds, well down on the prior year.
CEO Charlie Nunn confirmed on a call with reporters that this was partly down to a 700 million pound writeback on historic loans made against Britain's Telegraph newspaper, after they were repaid by the Barclay family in December.
As Britain's biggest mortgage lender, Lloyds' fortunes are closely linked with those of the struggling wider economy.
But like its rivals, Lloyds has enjoyed a huge boost to lending revenue from higher Bank of England interest rates - which underpin borrowing costs - while containing losses from potential unpaid loans.
Lloyds said it adopted more positive economic forecasts for 2024 that helped keep its bad loan charge low, and now expects UK growth of 0.5% this year and house prices to fall a more modest 2.2%.
Lloyds reported a 2023 pre-tax profit of 7.5 billion pounds ($9.5 billion), up from 4.8 billion and slightly above analyst forecasts.
The bank announced a final dividend of 1.84 pence and a share buyback of 2 billion pounds.
It also set out muted performance guidance for the year, with core margins forecast to fall to 2.9% and returns to 13%, before recovering to 15% by 2026.
CAR FINANCE PROVISION
Lloyds said it was admitting no liability or wrongdoing in setting aside a 450 million pound provision to cover possible redress claims linked to an ongoing regulatory review into charging by car finance lenders. Some analysts estimate the bank's potential costs could rise as high as 2 billion pounds.
Chief Financial Officer William Chalmers said the provision was the bank's "best estimate" and declined to comment on analyst models.
"There will be question marks around how Lloyds has come to that figure ... What we do know is that Lloyds is one of the more exposed banks should the FCA deem there was misconduct and customer loss," said Matt Britzman, equity analyst at Hargreaves Lansdown.
Analysts at RBC have estimated the sector's total compensation bill could reach 16 billion pounds, making it the costliest consumer banking scandal since the mis-selling of payment protection insurance (PPI).
Lloyds' CEO Nunn was paid was 3.7 million pounds in 2023, down 2% on 2022 remuneration. This was largely driven by a lower bonus.
Lloyds also announced it had appointed former Banco Santander (SAN.MC) executive Nathan Bostock to its board, after deputy chairman Alan Dickinson said he would step down.
Bostock was chief executive officer of the Spanish lender's UK arm from 2014 until 2022.
($1 = 0.7907 pounds)
