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Lloyds Banking Group has warned it will probably have to take an additional provision to cover the cost of the car finance mis-selling scandal, sending shares lower.
The disclosure comes after the Financial Conduct Authority said this week that the scandal would cost banks a total of £11bn.
Lloyds said on Thursday that the provision could be “material” and that it was still analysing the “ultimate impact” of the FCA’s ruling. Shares were down 2.6 per cent in afternoon trading after falling more than 3 per cent earlier.
Close Brothers, another lender with significant exposure to the scandal, also revealed on Thursday it would increase provisions from the existing £165mn to pay for the scheme, sending shares 9 per cent lower.
Lloyds is the UK’s biggest provider of car finance through its Black Horse business and has already taken a £1.2bn provision to cover the cost of the compensation scheme.
The scandal stems from commissions paid by lenders to motor dealerships as part of millions of vehicle sales over many years, which the regulator and courts have said provided an incentive for higher interest rates and were insufficiently disclosed to consumers.
The compensation scheme will apply to about 14mn motor finance deals taken out between 2007 and 2024.
Analysts at Citigroup estimated that, based on the £11bn cost of the compensation scheme, Lloyds would probably have to set aside a further £400mn.
FirstRand, a South African lender also affected by the FCA redress scheme, criticised the programme, saying on Wednesday it appeared to have gone beyond the bank’s “expectations of what can be considered proportionate or reasonable”.
Banks were at risk of higher payouts before the Supreme Court in August overturned much of an earlier Court of Appeal ruling that had threatened to saddle lenders with compensation costs of up to £44bn.
