Infographic: PPI costs wrong-foot UK banks four years on

Lloyds, Barclays, RBS and HSBC continued to top up PPI provisions into the last quarter of 2014 – and may well have to dip into their earnings again

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UK banks are still underestimating the costs of mis-selling payment protection insurance (PPI) four years since the scandal erupted, highlighting the unpredictable and drawn-out consequences of misconduct and the risk it poses to bottom lines.

The country's major four banks – Lloyds, Barclays, Royal Bank of Scotland (RBS) and HSBC – continued to add to their PPI provisions into the fourth quarter of 2014, full-year results showed. Lloyds made the biggest top-up during the year, £2.2 billion ($3.4 billion), and retains the largest pot for future compensation payouts and related administrative costs, at £2.5 billion.

"The provision remaining at December 31, 2014 assumes that we will receive a further 0.6 million complaints," the bank said on February 27.

The number of grievances filed last year was higher than expected, it added, echoing comments by Barclays and HSBC.

Monthly PPI payouts have come down from their 2012 peak but remain high: the average stood at £367 million between January and November last year – 30% lower than the equivalent figure in 2012.

Banks may well have to dip into their revenues again to replenish PPI coffers, given the volatile nature of complaints and the time frame they cover, with some insurance purchases going back to the 1990s. Barclays said last year that complaints about PPI sold over 10 years ago had caused a "significant spike" in PPI cases in March 2014.

And many of the claims banks have rejected are likely to come back to haunt them. Here, again, Lloyds and its brands lead the pack: just in the second half of 2014 the Financial Ombudsman Service received more than 37,000 new cases from people dissatisfied with the banking group's response to their PPI complaint. Although overall the ombudsman is receiving fewer PPI cases than in previous years, enquiries now take longer.

"It's getting increasingly complicated to investigate, the more time passes," an ombudsman spokesperson says.

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