Soaring levels of customer remediation, conduct failings and fines have cost Britain’s biggest banks £38.7bn, according to a KPMG report.
The accountancy firm’s study of full-year results from Royal Bank of Scotland (RBS), Lloyds Banking Group, HSBC, Barclays and Standard Chartered, portrays how the banks are performing – including the damage done by widespread malpractice.
The benchmarking report, A Paradox of Forces, shows that his total £38.7bn cost is more than 60 per cent of the five banks’ cumulative profits since 2011
Conduct costs last year for these lenders reached £9.9bn. This is just eight per cent down from 2013, with almost half the amount relating to payment protection insurance and interest rate hedging.
As a result of strengthening economic conditions, total loan impairment costs fell by 72 per cent, or £13.5bn to £5.2bn.
Although the level of impaired loans as a percentage of total loans to customers fell to an average of 3.4 per cent, it is still double the pre-crisis level of 1.6 per cent.
KPMG stated however that banks’ balance sheets are now in a healthier state than four years ago.
The study also found that the five banks’ combined pre-tax profits reached £20.6bn in 2014, up £7.9bn (62 per cent) from £12.7bn the previous year.
The boost in profits was against a backdrop of total income falling by £18bn to £127.2bn, as banks focused on less risky activities.
Bill Michael, EMA head of financial services at KPMG, said: “Banks are undergoing a once-in-a-lifetime change, as they face evolving regulation, technology and society’s expectations.”
He added: “Domestically-focussed banking arms are focused on restructuring their business.
“Some banks will follow a path of gradual evolution, others will opt for more radical strategic change. In the near-term, banks will focus on cost control and invest in technology to improve services.”
By Marcel LeGouais