Major Banks To Top Up PPI Bill To Over £22bn

By Mark Kleinman, City Editor

Britain's five biggest banks are poised to take their aggregate bill for mis-selling payment protection insurance (PPI) past £22bn, underlining its status as the most costly scandal in the industry's history.

Sky News has learnt that Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland (RBS) will all use their quarterly results statements during the next week to top up PPI compensation provisions.

Insiders said that the cumulative top-up for the five biggest UK lenders would be well over £1bn, to add to almost exactly £21bn already set aside for the scandal.

Claims orchestrated by claims management companies continued to pour in between July and September, scuppering banks' hopes that the pace of complaints would abate substantially during the second half of 2014.

Lloyds, which will be the first of the major UK banks to report third-quarter results on Tuesday, had by far the biggest share of the PPI policy market, and has so far allocated £10.425bn for compensation.

Barclays has set aside £4.85bn, and is said by analysts to be planning a smaller top-up charge later this week; RBS has provided just over £3.2bn; HSBC's bill has reached £2.1bn; and Santander has taken a £900m hit over the issue.

The sizeable new top-ups may revive calls for a so-called time-barring exercise, which would involve imposing a cut-off point for consumers to submit compensation claims.

The fact that a further £1bn or more is being set aside may surprise some bank shareholders, who have been told for more than a year by senior bankers that the tide of PPI claims should start to slow.

The Financial Ombudsman Service (FOS) said earlier this year that it had seen a substantial fall in new complaints, receiving just under 57,000 PPI-related complaints in the second quarter of the year, compared with just over 132,000 in the same period in 2013.

The latest wave of claims has concerned banks because many date back to before 2005, which was the reference point for an unsuccessful judicial review brought by the major banks just over three years ago.

Executives at major banks argue that the cost of administering even fraudulent or otherwise invalid claims can reach £1,000 each, eroding their capital at a time when they are facing political demands to lend more money to small businesses.

Banks are obliged to keep customer records for seven years, meaning that many new claims relate to policies for which neither banks nor customers have an accurate record.

The British Bankers' Association (BBA) had been leading tentative discussions with the City regulator about a cut-off point for claims.

Martin Wheatley, the Financial Conduct Authority's chief executive, told MPs earlier this year that he was sceptical about the prospects of a time-barring exercise.

The banks declined to comment on new PPI provisions.

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