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10th September 2019
Lloyds Bank making extra £1.2bn to £1.8bn provision for PPI claims after experiencing late rise before deadline-suspends remainder of 2019 buyback programme
Lloyds Banking Group is providing an update on charges relating to the misselling of Payment Protection Insurance (‘PPI’).
At the half year results on 31st July, the Group reported a PPI charge of £650m, with an unutilised provision of £1,083m relating to complaints and associated
administration costs. At that time, the Group also stated that its provision was based on the
assumption that PPI information requests continued at the elevated level of around 190,000 per week until the deadline for submission of claims on 29th August.
In line with the broader market, the volume of PIRs received in August was higher than expected, with a significant spike in the final days before the deadline expired. In the final month, the Group received approximately 600,000 to 800,000 PIRs per week, well above the previous assumption.
While the quality of these complaint volumes remains uncertain, given initial sampling, Lloyds believe the quality has continued at a low level. The Group also experienced an increase in direct complaints in the same period. Including claims by the Official Receiver, the Group now estimates that it will need to make an incremental charge for PPI claims, in addition to the provisions to
30 June 2019, in the range of £1.2bn to £1.8bn in its Q3 Interim Management Statement.
The estimated range amounts are preliminary and unaudited.
The Group continues to process PIRs and the final PPI provision could be above or below the range provided.
The Group now expects capital build in 2019 to be below its ongoing 170 to 200 basis points per annum guidance and for the statutory return on tangible equity to be lower than its 2019 guidance of around 12%, with the final outcome dependent on the actual charge taken.
In line with its prudent approach, and the uncertainty around the final outcome for PPI, the Board has decided to suspend the remainder of the 2019 buyback programme, with c.£600m of the up to £1.75bn programme expected to be unused at mid-September. In line with normal practice, the Board will give consideration to the distribution of surplus capital at the year end and continues to target a progressive and sustainable ordinary dividend. As previously reported, the suspends remainder Board’s view of the level of capital required by the Group to grow the business, meet regulator requirements and cover uncertainties reduced earlier this year from around 13% to around 12.5%, plus a management buffer of around 1%.