Britain's state-rescued Lloyds Banking Group on Wednesday said it had set aside a further £1.0 billion ($1.2 billion, 1.1 billion euros) to compensate customers who were mis-sold insurance.

The hit contributed towards LBG reporting a sharp drop in third-quarter net profits, to £219 million compared with a year earlier, the company said in an earnings statement.

However, profit after tax for the nine months to the end of September jumped 30 percent to £2.0 billion.

The update comes amid widespread concern across the financial sector that Brexit will hamper Britain-based banks in carrying out business across the European Union.

LBG chief executive Antonio Horta-Osorio said in Wednesday's company statement that "the outlook for the UK economy remains uncertain, however the strength of the recovery in recent years means the UK is well positioned". 

Bank of England chief Mark Carney on Tuesday said banks were in a position to "adjust" their operations over the next year, when asked about the prospect of lenders relocating abroad because of Brexit.

Reacting to comments over the weekend from Britain's powerful banking lobby, Carney told a parliamentary committee that certain "institutions would be in a position to adjust some activities over the course of the next year if they saw fit".

Away from Brexit, Lloyds' compensation for mis-sold payment protection insurance (PPI) now totals more than £17 billion -- far in excess of other British banks caught up in the long-running scandal.

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. 

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.

Including the latest update from LBG, British lenders have been forced to set aside more than £30 billion to cover PPI compensation costs.

The British government bailed out Lloyds during the financial crisis in 2008 at a cost of some £20 billion.

- Fresh headwinds -

While the bank has taken huge steps to recover, LBG and its rivals are facing fresh headwinds from record low interest rates that are hurting their profitability.

Earlier this month, Britain's Treasury said it would no longer offload its final nine-percent tranche of shares in LBG to the public, preferring institutional investors because of market volatility.

The London stock market and pound have experienced sharp swings since Britain voted on June 23 to exit the European Union, with the benchmark FTSE 100 index nearing a record high thanks in large part to sterling striking 31-year lows against the dollar. 

Banks' share prices have meanwhile suffered, with their retail margins cut after the Bank of England slashed its main interest rate to a record-low 0.25 percent to ward off the potential threat of recession following the Brexit referendum. 

Lloyds' shares fell 3.0 percent in morning deals, "probably because of the level of PPI costs taken by the bank", noted Laith Khalaf, senior analyst at stockbroker Hargreaves Lansdown.