Lloyds Banking Group has warned that the final cost of the motor finance scandal is likely to exceed the £1.2bn it has already set aside. The bank said an additional provision may be required, which could be material, based on its initial analysis of the proposed compensation scheme.
Close Brothers, one of the UK's largest car loan providers, also said the scheme was likely to result in a material increase in its existing £165m provision. The warnings came despite the Financial Conduct Authority (FCA) estimating average compensation payouts of £700 from about 14m unfair loans, lower than the previously anticipated £950.
The FCA put lenders' total compensation bill at £8.2bn, at the bottom end of its earlier forecast range of £9bn to £18bn. Lloyds shares fell more than 3% on Thursday after the announcement, while Close Brothers shares plunged nearly 10%. Secure Trust also issued a profit warning, sending its shares down over 16%.
The car finance scandal is the biggest since the payment protection insurance mis-selling debacle, which cost Lloyds heavily. The bank's 2024 pre-tax profits fell 20% to just under £6bn, partly due to the provisions.
