Clydesdale and Yorkshire Banks lumped with hefty PPI payouts

CLYDESDALE and Yorkshire Banks could have to set aside another £500m this year for mis-selling scandals.

Parent company National Australia Bank revealed the struggling UK lenders face a mounting bill as it updated the market on its latest results.

The bulk of this provision – between £290m and £420m – will be used to pay compensation to customers missold payment protection insurance.

Clydesdale and Yorkshire – which both operate under Clydesdale’s banking license – have been forced to reopen tens of thousands of past complaints that had previously been rejected. The High Street bank was hit with a record £21m fine in April after being caught falsifying documents to avoid compensating victims of mis-selling.

Staff deleted records and tampered with evidence to make it look like customers were not sold PPI, or they lied about not being able to trace documents. Clydesdale – which has so far set aside £806m for the scandal – is facing a soaring bill as it has been forced to revisit 180,000 old cases. As well as extra compensation, the provision will cover the costs of trawling through old cases.

The new provision will also include a sum of between £60m and £80m for another mis-selling scandal – this time involving small business customers. Clydesdale and been forced to compensate small firms mis-sold ‘interest rate swaps’, a complex form of insurance sold alongside loans.

These were meant to protect small firms against rising interest rates.

But when interest rates sank to record lows in midst of the financial crisis, small firms were locked into expensive deals and faced huge ‘break penalties’ if they wanted to move to a cheaper loan.

So far almost £2bn has been paid out in compensation to customers by UK banks, including £431m so far by Clydesdale. Clydesdale has escaped an even bigger bill because it sold a variation of these – dubbed tailored business loans – which fell outside the scope of the compensation scheme set up by the Financial Conduct Authority. But the bank has come under pressure to consider complaints about these policies after the Treasury Select Committee accused it of deliberately engineering them so customers would not receive any protection.

The new mis-selling provisions will be included in the £1.7bn National Australia Bank has been forced to pump into Clydesdale and Yorkshire to shore up its finances. They will be confirmed in its full year results on September 30.

NAB has been desperate to get out of the UK after Clydesdale and Yorkshire incurred huge losses on commercial property loans, as well as a hefty bill for misconduct.

The Australian lender yesterday said it had made ‘substantial progress’ over the previous three months on plans to hive off its UK operation and then float it on the stockmarket by the end of the year.