Lloyds Banking Group has said its quarterly profits slipped even though the group managed to book lower charges and costs.

It said third quarter underlying pre-tax profit fell eight per cent to £2 billion compared with a year ago, with analysts expecting the bank to post a profit of around £2.3bn.

The lender also booked a further £500 million payment protection insurance (PPI) charge in the period, which means Lloyds's PPI charges have topped £13.9bn since the mis-selling scandal broke.

The bank reported third quarter statutory pre-tax profit, including one-off items, of £958m, up from £751mn.

UK banks have set aside more than £28bn to meet compensation claims from borrowers who were sold PPI that go back almost 20 years.

Earlier this month the financial regulator, the Financial Conduct Authority (FCA), said it was considering a deadline for claims over mis-sold PPI, adding that customers would still have at least until 2018 to claim compensation.

Analysts said this would be a positive move for Lloyds, allowing it to draw a line under the scandal.

The bank said it backed Chancellor George Osborne's announcement earlier this month on the sale of around £2bn of Lloyds shares to retail investors in the spring.

The stock will be sold at a five per cent discount to the market price, and in a bid to avoid wealthier investors snapping up the lot, anyone applying for less than £1,000 worth will be prioritised.

Investors will be awarded a bonus share for every 10 purchased if they hold their investment for more than a year. This will be capped at £200 per investor.

The government pumped £20.5bn into Lloyds in a bid to prop up the bank in the midst of the financial collapse.

Ministers have so far recouped £15.5bn, and the Government currently owns just under 11 per cent of the bank.

Lloyds said: "We welcome the further progress that the Government has made this year and will fully support the proposed retail offer."

Over the first nine months of the year, the bank posted a statutory profit before tax of £2.2bn, a 33 per cent increase on the same period a year ago. It added that its underlying profit hit £6.4bn in the first nine months, a six per cent improvement on 12 months ago.

Chief executive Antonio Horta-Osorio said the bank continued to make "strong financial progress" over the first nine months of the year.

He added: "These results, coupled with our simple, low-risk, UK-focused business model, underpin our confidence in the group's future prospects and our strategic direction."

However, shares in Lloyds fell more than four per cent in early trading.