Royal Bank of Scotland has become the latest bank to make a provision to cover the cost of payment protection insurance mis-selling in the wake of the British Bankers’ Association’s decision to drop its judicial review into PPI complaint measures.
RBS announced last night that it had set aside an extra £850m to cover the costs of PPI redress and associated administration costs.
The bank says: “ Although the costs of PPI redress and its administration are subject to a degree of uncertainty, RBS will record an additional provision of £850m in the second quarter of 2011.”
The bank has paid £100m in compensation to PPI customers to date, and has an existing provision of £100m.
It follows an eventful week in the case brought by the BBA in October to examine the legality of PPI complaint handling measures set out by the FSA in August.
The BBA argued the FSA was applying its rules retrospectively, and also challenged guidance published on the Financial Ombudsman Service’s website based on the FSA’s package of PPI redress measures.
The case was heard in January, and the High Court ruled in April in favour of the FSA and the FOS.
The BBA had until May 10 to lodge an appeal, but its appeal case was weakened by the shock announcement from Lloyds Banking Group on Thursday that it had made a £3.2bn provision to cover the cost of PPI redress.
Lloyds, which has the largest PPI market share, also announced it was withdrawing its support for the judicial review.
On Friday RBS said it could not quantify its PPI liability, but said the amount could be material.
Banks held conference talks over the weekend over whether or not to appeal. On Monday morning Barclays announced a £1bn provision and that it too was not backing any appeal.
This prompted the BBA to announce it would not appeal the High Court’s decision, but said that it would pursue discussions over retrospective rules in other ways.
HSBC announced a £269m provision later yesterday morning.
RBS’ provision takes the total set aside by the banks to cover PPI compensation to £5.3bn, in excess of the £4.5bn cost estimated by the FSA last August. Analysts have suggested the industry cost could reach £8bn.
Santander, which was the only bank not to support the judicial review, does not expect to make additional PPI provisions. Its subsidiary Alliance & Leicester, which Santander acquired in 2008, was fined £7m by the FSA in 2008, the largest ever fine related to PPI mis-selling.