Abu Dhabi, UAEWednesday 13 November 2019

Lloyds and Barclays set aside another $4bn for insurance misselling claims

British lenders have so far paid out more than £36bn to consumers to settle claims

A sign hangs outside a Lloyds Bank branch in London. Reuters
A sign hangs outside a Lloyds Bank branch in London. Reuters

Lloyds and Barclays on Monday said a surge in late claims could see them pay out around $2 billion (Dh7.3bn) more each to settle Britain's costliest consumer banking scandal, the mis-selling of payment protection insurance (PPI).

Lloyds on Monday said it will set aside up to an extra £1.8bn (Dh8.16bn) to settle PPI claims, while Barclays later said it would set aside between £1.2bn-£1.6bn.

Lloyds also said it was suspending its 2019 share buyback programme.

The huge provisions show how banks in Britain are still battling with the legacy of the scandal, even after the August 29 deadline set for consumers to complain, as a rush of customer enquiries in the run-up to that date forced them to set aside more compensation money.

PPI policies were sold alongside a personal loan or mortgage to cover repayments if borrowers fell ill or lost jobs, but many were unsuitable.

Britain's High Court in 2011 ruled that consumers could retroactively seek compensation for mis-sold policies.

The subsequent rush of claims has been a boon for consumers, egged on by a rise in so-called claims management companies, with lenders having paid out more than £36bn in total and the final tally expected to top £50 billion.

RBS said last week it faced additional costs of up to £900m, while Clydesdale Bank made a fresh £300m-£450m provision.

As Britain's biggest domestic lender, Lloyds has been the most exposed to PPI and has already paid out more than £20 billion.

Lloyds said on Monday it had received 600,000-800,000 requests for information about PPI per week in August, well above its expectations of around 190,000 per week.

As a result, it expects to set aside a further £1.2bn-£1.8bn in its third quarter results to cover payouts.

Lloyds also said it had received a claim submitted by the Insolvency Service's Official Receiver on behalf of bankrupt consumers, pushing costs higher.

It added the charge would dent its profitability and it scrapped guidance for a return on tangible equity of around 12 per cent this year. It also warned the increase in its capital ratio in 2019 would be below its 170-200 basis points per annum guidance.

Barclays said it still aims to hold its core capital level at its 13 per cent target by year-end.

Lloyds made PPI provisions worth £650m in the first half of this year, meaning the total combined cost for 2019 could hit as much as £2.45bn, equivalent to 41 per cent of its £6bn pre-tax profit last year. The bank set aside £750m for PPI claims in 2018.

Analysts at broker KBW said the top end of the Lloyds charge, at £1.8bn, was marginally better than their worst-case scenario, while the Barclays provision was higher than the £700m they had predicted.

Lloyds was given some breathing space on capital in May, when regulators reduced its required core capital ratio to 12.5 per cent, from 13 previously, equating to around £1bn.

Lloyds is continuing to target paying a dividend and said it would make a decision on surplus capital at the end of the year.

Updated: September 9, 2019 09:31 PM

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