Banking giants to add £2bn to PPI bill despite payout slowdown

Britain's largest banks will add billions of pounds to their collective bill for payment protection insurance (PPI) mis-selling in the next fortnight despite evidence that the rate of compensation payouts is falling.

Sky News has learnt that executives at the four biggest high street lenders are finalising top-up provisions totalling in the region of £2bn that will be disclosed as part of their third-quarter results statements.

The quartet of banks - Barclays (LSE: BARC.L - news) , HSBC, Lloyds Banking Group (Other OTC: LLOBF - news) and Royal Bank of Scotland (LSE: RBS.L - news) - have already set aside a mammoth sum of more than £30bn for compensating victims of mis-selling and administering claims.

Sources close to the banks confirmed that they would add to their existing PPI provisions ahead of formal confirmation from the City watchdog that a 2019 cut-off point will bring an end to Britain's biggest consumer mis-selling scandal.

The Financial Conduct Authority (FCA) has been conducting a consultation on the so-called time-bar exercise, with submissions by interested parties made earlier this month.

The big banks had hoped to have already set aside sufficient funds for PPI mis-selling but have been forced into a rethink because the likely FCA deadline for claims is a year later than anticipated.

Lloyds, which had by far the biggest share of PPI policies, has already been forced to fork out more than £16bn over the issue.

It kicks off the third-quarter results statements from the UK banks next week, and analysts believe it will have to add another significant provision, even as the Government continues to offload its remaining shareholding in the bank.

Lloyds will be followed by Barclays, RBS and HSBC, each of which has racked up multibillion pound bills during the last five years.

Some City insiders believe their aggregate third-quarter top-ups could exceed £2bn, with some of the banks attempting to draw a line under the scandal by making what they hope will be their final mis-selling provisions.

Data published by the FCA this month revealed that the level of complaints about PPI remained static during the first half of this year compared to the second half of 2015.

However, monthly PPI compensation payouts, which are also disclosed by the watchdog, have been steadily falling this year.

They were down from £405.8m in April to £266.8m the following month and £244.6m in July - the latest month for which figures are available.

Some banks including Lloyds have also been fined significant sums by the City regulator for the way they have handled PPI-related complaints.

Bank executives and analysts have also warned about the implications of a case brought by Susan Plevin - which centred on a company's failure to disclose to her a large commission payment on her PPI policy - which they say could be catastrophic for the industry.

Analysts at Autonomous Research, which is chaired by the former City Minister Lord Myners, projected last year that banks could face a separate £33bn bill if the Plevin judgement was extended to other financial products.

Consumer groups have lobbied against a time-bar, arguing that it risks depriving customers of legitimate redress, despite the long-running nature of the scandal.

The PPI affair has also had a major impact on financial services groups outside the big four banks, with the exposure of the credit card provider MBNA affecting the price that bidders are prepared to pay for it.

None of the banks would comment on Tuesday.