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Bank’s PPI provisions were expected to rise – surprise results!

Last week saw the major banks announcing their third quarter 2017 results. Many different groups eagerly await these updates; regulators, investors, shareholders and the press. The headlines of the past few years were dominated by the increasing Payment Protection Insurance [PPI] provisions. With the increased PPI ‘noise’ in the media, as a result of the Financial Conduct Authority [FCA] PPI ‘deadline’ campaign, the press interest in these results was particularly focused. Many journalists wanted to learn how much the provisions would increase by as a result of the predicted rush in claims to beat the FCA PPI deadline.

As the Sunday Express headlined before the announcements, “PPI mis-selling compensation bill to show in banks’ results” with the sub-lead stating “Barclays, Lloyds Banking Group and Royal Bank of Scotland’s payment protection mis-selling compensation bills are expected to rise this week, when they unveil their third-quarter results.”

PPI mis-selling redress should be £100bn

Eighteen of the largest, and most complained about, product providers have funded the £42m FCA advertising campaign which started at the end of August. So, commentators were understandably expecting a further jump in PPI provisions. However, the predicted jump did not materialise. In fact, profits in the major banks jumped as the PPI provision pots largely remained the same or reduced. Although other factors unsettled some provider share prices, commentators warmly welcomed the PPI provision position. The question is, will we now see an end to increasing PPI provisioning? When all matters are taken into account, the answer is probably ‘no’.

It is now universally accepted that the final PPI mis-selling redress should be £100bn (plus administrative costs), assuming the FCA adverting campaign motivates consumers who have not yet claimed, to claim. On the basis that only £28bn has been repaid so far, it would suggest that provision will need to be increased again when the new wave of claims comes and reaches product providers.

What is the right result?

However, the key to this is the effectiveness of the FCA campaign. PFCA research shows that four in five consumers could not identify the deadline. No doubt, the FCA will issue ‘campaign’ updates throughout the two-year programme, but if the quarter three bank results and resulting lack of increasing provision are the ‘litmus test’ the campaign will have to change to get the right result. That, of course, assumes that the ‘right result’ is universally acceptable as an appropriate aim!

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