Lloyds Banking Group on Thursday announced a 59-percent slump in annual net profits on huge fresh costs linked to the mis-selling of a controversial insurance product.

LBG, which has been returned almost fully to the private sector after a state-bailout during the financial crisis, said in a statement that profit after tax tumbled to £466 million ($648 million, 590 million euros) last year compared with £1.125 billion in 2014.

It was dragged down by a further £2.1-billion provision incurred in the fourth quarter to compensate customers who were mis-sold payment protection insurance (PPI).

LBG last year set aside a total of £4.0 billion to cover the fallout of PPI, including administrative costs.

The bank's total bill for PPI now stands at £16.0 billion -- far higher than any other British bank caught up in the scandal.

PPI became controversial after it was revealed that many customers had been sold it without understanding that the cost was being added to their loan repayments. British authorities subsequently banned simultaneous sales of PPI and credit products.

In 2011, British banks lost a high court appeal against tighter regulation of PPI, which provides insurance for consumers should they fail to meet repayments on a credit product such as consumer loans, mortgages or payment cards.