CYBG sets aside extra $664m as customer complaints exceed forecasts

NAB offshoot CYBG has upped the amount of funds it will set aside to deal with legacy issues as complaints exceed forecasts.

A customer uses a Yorkshire Bank ATM in London. (Matthew Lloyd/Bloomberg)

NAB offshoot CYBG will increase provisions of legacy payment protection insurance by £350 million ($664m), resulting in a £202m pre-tax charge in its first-half income statement.

The charge would result in a pro forma reduction in the company’s Common Equity Tier 1 ratio of approximately 100 basis points, as at 31 December 2017, meaning it will be operating below its guidance range of between 12 and 13 per cent.

But in a statement to the ASX this morning, the CYBG Group (CYB), which operates both the Clydesdale and Yorkshire banks, said it “continues to maintain a significant buffer to its regulatory capital requirement”.

“The Group remains confident in the business delivering net capital generation going forward and is on track to deliver its medium term targets,” the company said.

It comes amid a review of CYBG’s two payment protection insurance (PPI) programs that have been running concurrently over the past six months comprising of a proactive customer contact remediation exercise and a customer-initiated new complaints handling.

“Within the customer-initiated complaint program, CYBG, in line with the rest of the industry, has experienced a sustained period of elevated complaints in the six months to 31 March 2018 with the peak occurring in January,” the company said.

CYBG said it received approximately 59,000 complaints during the period, higher than forecast.

“The elevated level of complaints has been driven by a combination of factors including heightened media coverage, the FCA advertising campaign and increased activity by claims management companies,” CYBG said.

CYBG said the provision amount is subject to the finalisation of the group’s first half results, for the six months ended March 31.

Under the terms of the conduct indemnity deed with National Australia Bank, the remaining undrawn indemnity amount of £148m will be fully used, with the balance funded by CYBG.

The CYBG board has approved an additional £350m in provisions to allow for £88m in relation to the costs required to close-out the final cases investigated as part of the remediation program; £186m for additional customer initiated complaints received before August 2019; and £76m for the costs of administering the redress programs.

“The group now expects the current level of complaints to remain at an elevated level for a period of time, followed by a reduction in volumes and costs as we approach the time bar in August 2019,” the company said.

“In determining the level of additional provision required, the Group has conducted a detailed review of its recent experience and undertaken a robust scenario analysis to reassess its view of the outlook for complaint volumes.”

The company will deliver its interim results on May 15.