BANKING: Lloyds may face further $3.2 bln PPI hit

Rival Barclays hiked its provision on Thursday for the mis-selling of payment protection insurance (PPI) by 700 million pounds to 2 billion pounds, prompting widespread speculation that other banks will follow suit and the total cost for the industry could hit 15 billion pounds.

PPI policies were typically taken out alongside a personal loan or mortgage to cover repayments if customers fell ill or lost jobs, but they were often sold to people who did not want or need them.

Part-nationalised Lloyds, which is Britain's biggest retail bank and sold more of the policies than rivals, has already set aside 4.3 billion pounds to deal with the matter, far more than rivals.

JP Morgan Cazenove analysts estimate that Lloyds held a 40 to 45% share of the overall PPI market and forecast Lloyds will have to set aside a further 2 billion pounds.

Investec analyst Ian Gordon said Lloyds would face an additional charge of 2.3 billion pounds based on the size of its share of the PPI market compared to Barclays.

"Lloyds established market leadership in PPI as the No. 1 provider of unsecured personal loans with superior penetration rates to peers. It is already paying a heavy price," he said.

Shore Capital analyst Gary Greenwood also estimated Lloyds could require an additional PPI provision of 2.3 billion pounds.

Lloyds on Friday said there "remain a number of uncertainties as to the eventual costs of redress".

Data released by Britain's financial regulator showed payouts by UK banks fell in June and July after they paid out 730 million pounds in May, raising hopes among banks that claims had peaked, but Barclays' move could show claims rose again in August and September.