Costs from the mis-selling of payment protection insurance (PPI) has accounted for more than half of all litigation and conduct charges faced by Britain’s biggest banks in recent years.
Moody’s Investors Service has said that PPI was the largest single source of conduct and litigation charges from 2011 to the first half of 2019, as the country’s five largest banks took a balance sheet hit from a long-running PPI scandal.
The cost burden facing these banks is set to ease following an end of new claims, with the deadline for complaints closing at the end of August.
However, a last-minute surge in claims ahead of the deadline forced large UK lenders to set aside fresh provisions.
Last week Lloyds Banking Group and Barclays revealed that they were facing PPI costs of up to £1.8bn and £1.6bn respectively following a bigger-than-expected stampede of complaints.
Substantial conduct and litigation provisions have weighed on the profitability of the large UK banks relative to their large European peers, Moody’s said today, piling on pressure amid Brexit uncertainty, low interest rates and shrinking mortgage interest margins.
Lloyds Banking Group was the most affected, with PPI provisions in quarter three of 2019 ranging between four per cent and six per cent of its Common Equity Tier 1 capital as of June 2019.
“Profitability of the five largest UK banks – HSBC, Barclays, RBS, Lloyds and Santander UK – has long been weakened by persistently high conduct and litigation costs,” said Laurie Mayers, associate managing director at Moody’s.
She added: “The 29 August deadline for new PPI claims prompted a surge in late enquiries, forcing lenders to set aside fresh provisions, but it brings to a close the most costly recent remediation episode for the UK banking industry.”