Lloyds Banking Group Plc. (LON:LLOY) reported a pretax profit of £2.9bn in the first six months of the current year, below analysts’ expectations of £3bn after the bank raised its provisioning by an additional £550m to cover claims arising from the misselling of its payment protection insurance (PPI) scheme.
The PPI dates back to more a decade when customers applying for a loan or line of credit were charged an additional sum which was clubbed with the interest to protect banks in the event customers default on payments. However, the scandal came to light in 2011 when customers claimed that they were not fully aware of the charge or that it was optional rather than mandatory, prompting the Financial Conduct Authority (FCA) to step in and issue a deadline of 29th August for customers to settle claims against lenders.
As of May this year, the total claims paid out by banks amounted to £36bn, with Lloyds alone settling more than £20bn in claims of which £650m were settled this year, leading to a 7% drop in the bank’s pre-tax profits in H1 2019. With the bank expecting additional claims before the cut-off date in August, it is expected to have set aside about £1.1bn to settle any further disputes arising from the payment protection insurance scandal.