Scandals cost UK banks £39 bn

Banking scandals in the UK have cost lenders a staggering £39 billion.

Customer redress, conduct failings and fines had reached 60 per cent of profits from the UK's five biggest banks since 2011, an analysis by auditors KPMG revealed.

The price of wrongdoing alone stood at £9.9 billion last year, with about half of it relating to Payment Protection Insurance (PPI) mis-selling and interest rate hedging.

Bank balance sheets however were healthy with profits at HSBC, Lloyds, RBS, Barclays and Standard Charted rising a collective 62 per cent to £20.6 billion in 2014 from the previous year. 

However, recovery from the financial crisis and fallout scandals had been at different levels across the institutions. The state-backed banks registered the largest profitability increase, whereas it was falling at the other three, according to the report.

Further, the rise in profits came against a backdrop of declining incomes, as banks focused on less riskier activities.  The report warned that the banks were not getting a good enough return on equity.

Combined pre-tax profits at the lenders increased 62 per cent to £20.6 billion, despite income falling by 12 per cent to £127.2 billion as lenders chose to move away from risky activities following the financial crisis.

According to the report, repayments relating to Payment Protection Insurance (PPI) and interest rate hedging products amounted £9.9 billion last year, down just 8 per cent on 2013.

PPI, meant to help policyholders repay loans and credit card debts in the event of illness, accident, redundancy or death, was mis-sold to people who did not  need it, or even understand it.

According to Pamela McIntyre, head of banking audit at KPMG, the banks were in a period of transition as they adapted their business plans to respond to the shifting regulatory landscape.

She added, the long-term outlook was still uncertain, but the report revealed there was clear evidence of change.