UK Banks’ Scandal Bill Now Costliest Ever
The mounting bill U.K. banks face for payment protection insurance (PPI) mis-selling is now around 12.3 billion pounds ($19.8 billion), making it the costliest bank mis-selling scandal ever in the UK, according to consumer group Which?.
The big U.K. retail banks have set aside an additional 1.4 billion pounds to pay consumers who were mis-sold the insurance, when they reported earnings this week, bringing the total provisions made for the scandal to 12.3 billion pounds.
"The banks have been in denial about the true scale of this scandal," Which? chief executive Peter Vicary-Smith said in a statement.
"Their piecemeal approach to topping up provisions is an inadequate response to what is now the biggest financial mis- selling scandal of all time."
The cost of the scandal has eclipsed the 11.8 billion bill for pensions mis-selling scandal of the late 1980s/early 1990s.
All the main U.K. banks have had to add hundreds of millions of pounds to their initial predictions of how expensive the scandal would be, after widespread coverage of the claims and aggressive campaigns by claims agencies targeting consumers through text messages and advertising.
Lloyds Banking Group, responsible for almost half of the mis-sold policies, added a further 1 billion pounds to its provisions this week.
The amounts set aside may prove to be inadequate if the current pace of payouts continue, according to Which?, who said that Lloyds' existing provisions would run out in March next year if the pace of payouts continued.
Bruce Van Saun, finance director of Royal Bank of Scotland, told CNBC Friday that the U.K. banks would emerge as "stronger institutions" from the current morass.
He described the additional 400 million pounds provision by RBS announced Friday as the bank's "best guesstimate" of what the final bill would be
"We have been guilty of underestimating what the overall complaint response rate will be, along with other banks," he admitted.
Written by Catherine Boyle, CNBC. Twitter: @cboylecnbc.