The final costs of the amount that UK banks have set aside to cover compensation payments for the mis-selling of payment protection insurance (PPI) is expected to reach £25 billion.
According to new research carried out by The Times newspaper, the final costs could end up almost double the current £13 billion that has been set aside so far.
Using the Financial Services Authority’s (FSA) monthly PPI payout figures and historic selling data to make its calculations, The Times says that in a “worst-case scenario” the figure could even reach £40 billion if banks end up having to repay every fee they generated through PPI mis-selling over a decade.
In the last year, most UK banks have been forced to add further extended provisions for PPI payments to their financial statements.
In November, Lloyds Banking Group increased its provision by £1 billion to reach £5.3 billion. Barclays also set aside an extra £700 million and the Royal Bank of Scotland raised its provisions by £400 million to £1.7 billion.
In November, the Bank of England stated in its Financial Stability Report that banks would need to set aside an additional £4 to £10 billion in PPI costs on top of current provisions to cover fines and compensation payments.
The times states that banks received an average of 200,000 PPI refund requests each month on average in 2012 and that in the last month where data is available, in October 2012, banks repaid £534 million, up on September and taking the total amount repaid so far to more than £7.5 billion.
The rise in the expected total redress of PPI mis-selling comes after the FSA ordered banks to pro-actively write to customers who may have been mis-sold PPI to ask them to consider if they may have a claim.
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