| Banks

Commercial banks on PPI

The banks had made an earnest earning in the last two decades by mis-selling PPI policies to its customers. But like most other misdeeds that come back to haunt this one has come around the corner and with it dealt a huge blow to the banks. Ever since the mis-selling scandal was brought to public attention the banks have had to set aside billions to settle the PPI mis-selling cases. This has naturally strained their finances and they are now looking for ways to reduce their spending on PPI.

The profitability of the banks has been hit hard with all the compensation payouts, misconduct fines and other legal costs. It is said that the banks finances will be affected at least until another two years.

When we talk about the profitability of the banking industry being hit so hard we can easily understand the extent to which this scandal has tarnished the reputation of the financial sector.

The fines that have been paid as a part of the whole compensation are said to have reached close to £15bn in 2015. Naturally it has placed a huge dent on the balance sheets of the banks and it is expected to get worse with the £42mn awareness campaign that has been launched to raise awareness about PPI. The total amount given away as PPI compensation has only been increasing in the last 3 years.

The Llyods banking group has taken a fresh £1bn hit in revenue due to the PPI compensation claims. The banking groups profits have only increased by 4% which is a significant decline compared to the rate at which its profits have soared prior to the mis-selling scandal.

Worse was the situation at the Barclays group which recently came under fire from the Government for the size of fines that the group had to pay. It had to pay a whopping $2.5bn to settle an investigation for alleged manipulation of foreign exchange benchmarks.

The Barclays group have set aside close to £2.2bn for PPI compensation which is the closest to the maximum amount that has been set aside by Lloyds banking group which is about £4bn. When so much of the banks liquid assets will be given away as compensation it is bound to hit them where it hurts the most, the balance sheets. Despite the gloomy days that the banks have been witnessing for quite some time they are optimistic about the banking industry doing slightly better this year.

Check now for FREE
Share this post: