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Lloyds Banking Group has set aside £450m to cover the potential costs of a regulatory investigation into its historic Motor Finance Commission arrangement.
Last month, the Financial Conduct Authority announced it would investigate discretionary fees on car loan transactions dating back a decade, saying the arrangements gave lenders and dealers incentives to raise the interest rates they charged customers.
Analysts fear the investigation could cost the industry billions of pounds. Lloyds owns Blackhorse, the UK's largest car finance provider.
Lloyds announced the provision on Thursday alongside its fourth quarter results. Britain's biggest high street lender said its underlying pre-tax profit for the final quarter of the year was £1.8bn, in line with analyst expectations. Quarterly sales fell year-on-year to £4.2bn, below expectations of £4.4bn.
For the full year, profits rose to £7.8bn, in line with expectations, benefiting from sector-wide gains from higher interest rates.
Lloyds shares fell 0.5% in early trading.
The amount Lloyds had set aside for bad loans was much higher than expected after an FCA investigation. Provisions for bad debts rose to £541m in the fourth quarter, well ahead of analysts' expectations of £126m and well above the £187m set aside in the third quarter. This increase came despite a windfall benefit from the repayment of debt related to Telegraph Media Group.
Lloyds shares have fallen about 10% since the start of the year, partly due to the company's holdings in Blackhorse.
Analysts at RBC Capital Markets estimate that the scandal, which is reminiscent of the Payment Protection Insurance (PPI) crisis, could cost Lloyds £2.5bn more than its competitors. .
The bank said “significant uncertainties” remained about “the extent of the fraud and customer losses” and “the nature and timing of remedial actions, if any,” and therefore the ultimate blow would be significantly lower. He added that there is a possibility that it will become larger, or that the timing may occur. lower.
Like other retail banks, Lloyds has benefited from interest rate hikes by the Bank of England over the past two years. But the sector's windfall is widely thought to have peaked, with base rates expected to start falling this year.
Deposits fell by 1% to £471bn in 2022 as customer account balances fell due to increased spending and increased competition in the savings market.
