LONDON, July 31 (Reuters) - Britain's biggest mortgage lender Lloyds Banking Group posted weaker-than-expected pretax profits on Wednesday, as a further 550 million pound ($668.9 million) provision to meet claims for mis-sold insurance to consumers weighed on earnings.
The bank posted pretax profits of 2.9 billion pounds for the first half of the year, below forecasts of 3.45 billion pounds according to a company-provided average of analyst forecasts.
The figure was down 7% from 3.12 billion pounds for the same period the previous year.
Lloyds said exceptional charges, including PPI, would knock its ability to build capital for 2019 to the lower end of its 170 to 200 basis points range.
Without one-off costs, Lloyds matched analyst forecasts for underlying profits, at 4.2 billion pounds.
Chief Executive Antonio Horta-Osorio said Britain's deepening Brexit crisis had impacted on business confidence.
Britain's lenders are bracing themselves for a potentially chaotic Brexit, with businesses voicing concerns at new Prime Minister Boris Johnson's combative approach and the raised prospects of the country leaving the European Union without a deal, which has slashed the value of the pound.
Lloyds is seen as particularly exposed to any downturn through its billions of pounds of lending to British consumers and businesses, but unlike rivals Royal Bank of Scotland , Barclays and HSBC is yet to make a provision against a potential spike in bad loans.
Lloyds posted a 27% jump in impairments on bad loans to 579 million pounds, which it blamed on a weakness in used car prices hitting its motor finance business.
Intense competition in Britain's home lending market pulled down Lloyds' net interest margin - a closely-watched measure of underlying profitability - to 2.9% from 2.91% the previous quarter and 2.93% a year ago.
Despite the deterioration both the impairments and net interest margin figures were in line with analyst expectations.
The bank's core capital ratio - a measure of financial strength - was 14.6%, down from 14.2% the previous quarter, but above consensus of 14.2%. ($1 = 0.8223 pounds) (Reporting by Iain Withers and Lawrence White, editing by Sinead Cruise)