Lloyds Banking Group has nearly tripled the funds set aside to cover potential compensation for car finance mis-selling, raising its provision to £1.2bn. The move has impacted the bank’s annual profits, which fell to £5.97bn from £7.5bn the previous year.
The bank is allocating an additional £700m on top of the £450m already earmarked. Lloyds and other lenders are under scrutiny over whether they adequately disclosed commission payments to car dealers, with millions of motorists potentially in line for compensation.
However, group chief executive Charlie Nunn told the BBC that the motor finance issue was “not comparable” to the payment protection insurance (PPI) mis-selling scandal, which cost the bank billions. He described the new provision as Lloyds’ “best guess at this stage,” adding that the bank’s overall performance remained strong.
“Underlying performance has been really robust, and we’ve seen really good growth in the business,” he said.
Despite the increased provision, Lloyds’ share price rose following its latest results, reflecting confidence in its financial strength. Other banks have also made provisions for potential compensation, with Barclays setting aside £90m and Santander £295m.
The Supreme Court is expected to rule in April on whether consumers were properly informed about commission arrangements on car loans. The decision could have significant implications for lenders, particularly for deals made before regulations changed in 2021.
Lloyds, which owns motor finance provider Black Horse, holds the largest exposure among UK banks. The PPI scandal, which ultimately cost UK banks tens of billions, saw Lloyds pay out £21.9bn in compensation by 2019.
