articles Ratings /ratings/en/research/articles/190910-capital-strength-helps-u-k-banks-to-weather-additional-ppi-charges-11145919 content
Log in to other products

Login to Market Intelligence Platform


Looking for more?

Request a Demo

You're one step closer to unlocking our suite of comprehensive and robust tools.

Fill out the form so we can connect you to the right person.

  • First Name*
  • Last Name*
  • Business Email *
  • Phone *
  • Company Name *
  • City *
  • We generated a verification code for you

  • Enter verification Code here*

* Required

In This List

Capital Strength Helps U.K. Banks To Weather Additional PPI Charges

Capital Strength Helps U.K. Banks To Weather Additional PPI Charges

In recent days, several U.K. banks have announced the range of additional Payment Protection Insurance (PPI) provisions which they expect to book when they announce their results for the period to Sept. 30, 2019. The early announcements relate to the increase in information requests that banks received ahead of the Aug. 29, 2019 complaints deadline, including an exceptional surge in the final days. As they have still to work through the large volume of requests, and the conversion rate to an upheld complaint may differ from historic experience, each bank has stated that the final provision could be higher or lower than the range published.

Against this backdrop, we have reviewed our capital assessments for each banking group. All else being equal, we do not anticipate any related ratings action, which is consistent with our opinion stated in our broader PPI deadline commentary on Aug. 30, 2019 (see “The Deadline For PPI Claims Has Passed But The Impact On U.K. Banking Is Permanent”).

Still, the likely final financial impact of PPI provisioning, in terms of banks' full-year 2019 earnings, is more negative than we had previously assumed. Moreover, lower statutory earnings come at a time of U.K. political impasse, a domestic economy that has been showing signs of weakening, and industrywide pressure on net interest margins. The banks' third-quarter provisions represent their best estimates of their remaining PPI costs, including settlements and administration costs. It will inevitably take time for banks to work through the backlog of complaints and we see potential for further provision adjustments in the fourth-quarter and into next year, albeit much less material than third-quarter amounts.

Capital is an important component of our ratings analysis, but it is only one of several key elements. There are currently no examples of capitalization being a credit negative for U.K. banks. While we expect this to remain the case, weaker capital ratios than we had previously assumed may not be able to mitigate a weakening in other rating factors, for example if we perceive a potential for a sharper-than-expected deterioration in the U.K. economy. We therefore assume that bank boards may now be less supportive of large shareholder distributions once banks announce year-end results.

For the affected U.K. banking groups, the following summarizes our capital assessment, in relation to our risk-adjusted capital (RAC) ratio and based on banks' announced expectations:

  • Barclays PLC expects to increase its PPI provision by £1.2 billion-£1.6 billion in the third quarter. It now expects its common equity Tier 1 (CET1) ratio at year-end 2019 to meet management's target of about 13%, which compares to 13.4% at June 30, 2019. We continue to project that Barclays' RAC ratio will be in the 10.0%-10.5% range over the next 18-24 months.
  • CYBG PLC expects to book an extra £300 million-£450 million in PPI provisions in the six months to Sept. 30, 2019 (a longer period than peers owing to its year-end being Sept. 30). As a result, we now expect CYBG to be loss making in full-year 2019. We revised down our assessment of CYBG's capital and earnings assessment earlier this year (but at the same time affirmed its ratings), and stated in May 2019 that we assumed a RAC ratio of 9.5%-10.0% through to year-end 2021. The extra provision appears likely to reduce this projection down to around 9%.
  • Lloyds Banking Group PLC expects to book an extra £1.2 billion-£1.8 billion in PPI provisions in the third quarter. At the same time, we note that the Board has decided to suspend the remainder of its 2019 share buyback program, with about £600 million of the program likely to be unused at mid-September. In absolute terms, Lloyds continues to be the U.K. bank most affected by PPI. We still expect Lloyds' RAC ratio to be in the 7.5%-8.0% range through year-end 2021.
  • Royal Bank of Scotland Group PLC expects to book an extra £600 million-£900 million in PPI provisions in the third quarter. While this range is higher than anticipated, it nevertheless reinforces why, among other reasons, we expect RBSG's RAC ratio to be at the top of the 7%-10% range at end-2021. This ratio was 10.7% at Dec. 31, 2018.

At this time, HSBC Holdings PLC, Nationwide Building Society, and Santander UK Group Holdings PLC have not announced a PPI update. In each case, we don't anticipate that any additional PPI provisions will affect our capital assessments.

In all cases, we don't believe that additional PPI provisions will affect ratings uplift for the main operating banks, as a result of our assessment of additional loss-absorbing capacity (ALAC). This is despite the quantum of excess total adjusted capital (TAC) within the calculation of ALAC appearing likely to be reduced. We note that most banking groups have made further progress with ALAC-eligible issuance year-to-date.

Related Research

  • The Deadline For PPI Claims Has Passed But The Impact On U.K. Banking Is Permanent, Aug. 30, 2019
  • Limbo State Lingers For U.K. Banks, Aug. 28, 2019
  • Everyone Passed: Stress Tests Highlight Growing Resilience Of U.K. Banks, Nov. 29, 2018

This report does not constitute a rating action.

Primary Credit Analyst:Nigel Greenwood, London (44) 20-7176-1066;
Secondary Contact:Richard Barnes, London (44) 20-7176-7227;

No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.

Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.

To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw or suspend such acknowledgment at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.

S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.

S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, (free of charge), and and (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at

Any Passwords/user IDs issued by S&P to users are single user-dedicated and may ONLY be used by the individual to whom they have been assigned. No sharing of passwords/user IDs and no simultaneous access via the same password/user ID is permitted. To reprint, translate, or use the data or information other than as provided herein, contact S&P Global Ratings, Client Services, 55 Water Street, New York, NY 10041; (1) 212-438-7280 or by e-mail to:

Register with S&P Global Ratings

Register now to access exclusive content, events, tools, and more.

Go Back