Banks set aside billions more for PPI compensation

BANKS are set to pay out billions more in compensation for missold payment protection insurance policies, as claims continue to flood in.

Lloyds Banking Group could put aside a further £1billion over the next 18 months, analysts at stockbroker Investec said. Lloyds has already put aside £12billion for PPI payouts, out of an industry total of £24billion.

The banks were hoping that PPI claims would tail off this year. Lloyds said that by the summer it will have contacted all those it sold PPI to, and it hoped claims would decline sharply after that. But data for the start of this year and released last week shows compensation remaining stubbornly high – with £424 million paid out in January.

‘This represents the highest level for a single month since November 2013,’ said Ian Gordon, a banking analyst at Investec.

The Financial Ombudsman Service says complaints are now coming in at half the levels of a year ago, suggesting the figures could drop off sharply later in the year. But it is still getting 4,000 claims a week and these account for three-quarters of complaints that it receives.

Last year, RBS finished contacting customers it sold PPI to, but it said at the time of its full-year results that claims management companies were driving higherthan-expected volumes of claims.

On top of the high payouts in January, the FCA last week upgraded its figures for the last three months of 2014, saying that it had added up the figures incorrectly the first time, adding £100million to the total payouts in the last quarter of 2014.

‘We believe that the January PPI data, together with upward revision to the Q4 2014 data, is worse than the market would have assumed and is likely to heighten expectations of yet further top-up charges in 2015 and beyond,’ Investec said.

PPI misselling has proved the costliest of all the bank scandals to have emerged since the financial crisis. The banks have increased their provisions several times to upgrade their estimates of the cost to them. When Lloyds accepted in 2011 that it would have to meet claims, it put the likely cost at just £3.2billion.

The banks could increase their PPI provisions when they release first-quarter results at the end of this month. Investec said it expected Lloyds to report profits of £1.5billion for the quarter.

PPI payouts have been credited with providing a crucial prop to the economy over the past few years. The Society of Motor Manufacturers and Traders has said that the payouts were boosting car sales. ‘It’s not enough for a house deposit, but it’s certainly enough for one on a new car,’ SMMT boss Mike Hawes said.