Lloyds sets £1.8bn aside for payment protection

Lloyds Banking Group will set aside up to an extra £1.8bn to settle mis-selling claims in Britain’s costliest consumer banking scandal, and said it was suspending its 2019 share buyback programme.

Banks are putting aside more money to pay claims against mis-sold payment protection insurance following a rush of consumer inquiries about compensation ahead of the deadline on August 29.

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

The payment protection insurance saga has already cost lenders more than £36bn in payouts, with analysts estimating the final bill could top £50bn. Royal Bank of Scotland 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 payment protection insurance and has already paid out more than £20bn.

Lloyds said on Monday it had received 600,000-800,000 requests for information about payment protection insurance in August, well above its expectations of about 190,000.

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

The bank’s shares fell more than 2% in early trading.

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 said the charge would dent its profitability and scrapped guidance for a return on tangible equity of about 12% in 2018.

The lender made a payment protection insurance provision in its second quarter of £650m.

Lloyds had been expected to make a further provision following its rivals’ moves, with analysts at KBW saying they had downgraded the bank last week partly due to the expected charge.