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Lloyds Banking Group has announced a first quarter loss, after making a £3.2bn provision for mis-selling claims by customers who took out payment protection insurance (PPI).

Lloyds reported a loss of £3.47bn for the first three months of the year. It made a £721m profit a year ago.

It also took a charge of £1.1bn to allow for further falls in commercial property prices in the Irish Republic.

Its PPI provision was much bigger than expected and Lloyds' shares fell 7.7%.

However, the bank's core business showed growth as customer loans and deposits rose from £842bn to £847.8bn.

"The bank as a whole appears to be getting better and appears to be taking a larger market share," said Ralph Silva, banking analyst at SRN.

Before the provision for PPI compensation and other one-off items, the bank said it had made a profit in the quarter of £284m.

The results were the first presented by new Lloyds chief Antonio Horta-Osorio, who replaced Eric Daniels on 1 March.

'Embarrassment'

In February, Lloyds announced that it had returned to profit in 2010.

It made a profit of £2.21bn, having reported losses of more than £6bn in both 2008 and 2009.

����ý business editor Robert Peston said the loss in the first quarter of 2011 would be an "embarrassment" for Lloyds, given that it trumpeted its return to profit last year.

But he said it was not embarrassing for Mr Horta-Osorio, who was not responsible for previous decisions and was now facing up to mistakes of the past.

The new chief has already announced management changes as part of a shake-up at the bank.

In June, he will reveal more details about his long-term strategy for Lloyds.

Industry hit

PPI policies are supposed to repay a person's loan if their income drops because they fall ill or lose their job. But thousands of people have received compensation because they were mis-sold policies.

The Financial Services Authority (FSA) published guidelines last year which said banks should contact all past PPI customers and invite them to complain if they thought they had been mis-sold PPI.

UK banks, led by the British Bankers' Association (BBA), challenged those guidelines, arguing that the rules were unfair because they were retrospective.

But last month a High Court judge rejected their challenge, meaning that banks could face huge compensation bills.

The BBA is now considering whether to mount a new legal challenge, but Mr Horta-Osorio told reporters that Lloyds would no longer be participating in the BBA's judicial review.

"We do not want to continue a long-standing debate of this with the regulator," he said.

Robert Peston said Lloyds' decision to settle with PPI claimants was a unilateral one, but could lead to other banks following suit.

"The size of Lloyds' charge implies that the big British banks will in total take a £9bn hit to settle PPI claims," he said.

Customer claims

Lloyds has thousands of PPI complaints stacked up.

These will now be processed, the bank says, after having been put on hold while the recent High Court case reached its conclusion.

All other customers of Lloyds, including those of the former HBOS bank, are now being invited to contact the bank if they think they have a claim.

It is not revealing exactly how it has quantified the eventual cost as being £3.2bn.