Lloyds Banking Group has recorded a £3.3 billion loss because of the high cost of compensating customers who were wrongly sold payment protection insurance (PPI).
The Lloyds Banking Group includes Lloyds, Halifax and Bank of Scotland.
The part-nationalised bank said in May that it had put aside £3.2 billion to cover the costs from paying back PPI claims.
It is the highest amount any UK bank has had to pay out for PPI claims.
Earlier this week, Barclays said it had set aside £1 billion for PPI payments, while HSBC is to pay out £269 million.
Despite the results, Lloyds' chief executive said the group is headed in the right direction.
"We delivered a resilient first half performance, despite the ongoing challenge of economic and regulatory uncertainty, and have made substantial progress in restructuring and de-risking the group," said Antonio Horta Osorio, chief executive of Lloyds Banking Group.
"I expect the actions we are taking, as detailed in our Strategic Review announcement, to enable us to create a high performance organisation over time and deliver the best from our franchise for both our customers and our shareholders."
Lloyds said it is on track to deliver on its Project Merlin targets that the Government has set to ensure that credit is made available to UK businesses.
The banking group committed £21.2 billion of lending to businesses in the first six months of the year, of which £6.7 billion has benefited small and medium sized firms.
In the first six months of the year, the group said it achieved a market share of 20% of mortgage lending in the UK , helping more than 24,000 people to buy their own homes.
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