Lloyds Banking Group says it is increasing its provision for the mis-selling of payment protection insurance (PPI) by another £1.8bn, bringing the total to nearly £10bn.
But it also said underlying profits for 2013 would be £6.2bn - nearly double what analysts have been expecting, the BBC reports.
The increased provision reflected a greater number of successful complaints, the bank said.
In October, Lloyds increased its PPI provision by another £750m.
Lloyds also said it would be setting aside a further £130m relating to the sale of interest rate hedging products to small and medium-sized businesses.
The bank added that the regulator, the Prudential Regulation Authority, would now consider allowing Lloyds to resume making dividend payments, given the group's improved financial performance.
"Modest" dividend payments would probably begin in the second half of 2014, the bank said.
