Lloyds Banking Group has become the latest lending giant to post a bumper annual profit haul and reveal a return to bonuses despite a hit from fraud costs.

The group reported pre-tax profits surging to £6.9 billion in 2021, up from £1.2 billion the previous year, though the figure came in below City expectations.

The lending giant said results were boosted as it booked a £1.2 billion credit from provisions for bad debts, having set aside £4.2 billion the previous year, while it also benefited from a boom in mortgage demand.

Lloyds saw its mortgage book jump £16 billion higher to £293.3 billion last year.

2021 has been a year of solid financial performance

But it revealed charges for past misdeeds of £1.3 billion over the year, with a £775 million hit in the fourth quarter, including £600 million for the HBOS Reading scandal, which took place before the financial crisis.

The group said as a result of the HBOS scandal and way previous compensation was handled, it has frozen deferred bonuses that were due to pay out this year for former chief executive Antonio Horta-Osorio, who left last year, and two other executives including former finance boss George Culmer.

These have been suspended while the remuneration committee considers whether to reduce the payouts.

Its annual report showed that overall Lloyds shared out a staff bonus pot of £399 million for 2021, having not paid out any bonuses in 2020 due to the pandemic.

But it said the pool was reduced by £83 million reflecting a recent regulatory fine for insurance renewal documentation and the HBOS Reading provision for compensation payouts.

The report showed chief executive Charlie Nunn was paid £5.5 million last year, despite only taking on the top post in August, as his pay package was boosted by a £4.2 million “golden hello” to buy out shares he held in previous employer HSBC.

Mr Horta-Osorio – who left for a short-lived and ill-fated stint as chairman at Credit Suisse – was paid £2.5 million, including a £1.5 million bonus, although some of the deferred payments for 2022 have been suspended.

The group also delivered returns to investors as it said it would buy back £2 billion of its own shares and pay a final dividend of 1.33 pence a share.

But Lloyds shares fell 8% amid hefty falls on the wider London market as Russia’s military attack on Ukraine sent stocks reeling.

Mr Nunn also unveiled what he called an “ambitious” strategy alongside the results, promising a “significant shift” towards growth, focused more on fee-paying business to become less reliant on interest rates.

Lloyds is doing well, but historically its fate has largely been tied to the performance of the UK’s housing market, the prospects of which currently split opinion

He stressed this would not affect its basic banking services.

The new boss also pledged to spend £4 billion over five years on growing sectors, such as wealth management and online business banking.

“2021 has been a year of solid financial performance with successful strategic execution, ongoing investment and continued franchise growth,” he said.

The figures cap a slew of impressive results from the major players in the sector, following profits of £8.4 billion at Barclays, HSBC’s mammoth 18.9 billion US dollar (£13.9 billion) earnings and £4 billion in operating profits at NatWest.

Lloyds said it was expecting mortgage business to ease back in 2021 amid rising interest rates and the cost of living crisis, though it said the long-term drivers of the housing market would ensure ongoing growth.

John Moore, senior investment manager at Brewin Dolphin, said: “Lloyds is doing well, but historically its fate has largely been tied to the performance of the UK’s housing market, the prospects of which currently split opinion.”