British bank Lloyds made a loss last year after setting aside a further £1.9 billion to compensate customers mis-sold products and said it planned to give its chief executive a £1.5 million bonus.

The part-nationalised bank, which owns the now defunct Bank of Scotland (Ireland), said growth in new impaired Irish loans eased from 4.1 per cent to 1.6 per cent in 2012.

The bank said that by end of the December, its Irish loan book had shrank from £24.8 billion to £19.5 billion.

Lloyds said it would award chief executive Antonio Horta-Osorio the shares, deferred until 2018, if the price stayed above 73.6 pence for a period of time or the government sold at least a third of its holding for more than 61 pence per share. Lloyds shares closed at 54.5 pence yesterday.

Mr Horta-Osorio said Lloyds was ahead with its revival plan and expected a substantial reduction in impairments this year and a corresponding increase in underlying profit.

Britain's biggest retail bank set aside another £1.5 billion to compensate customers mis-sold payment protection products, taking its bill for that to £6.8 billion. It set aside £400 million more for compensation on interest rate swaps.

It marked the fourth attempt by Lloyds to provision for expected PPI compensation and it has paid out far more than any other bank. PPI policies were meant to protect borrowers who found themselves out of work because of sickness or redundancy but were often sold to customers who did not want or need them.

Provisions dragged the bank to a pretax loss of £570 million for the year, compared with a loss of £3.5 billion in 2011.

It said underlying profit rose to £2.6 billion in 2012 from £638 million a year earlier.