CYBG increases PPI provision, to take £39m charge

FTSE 250 lender CYBG said on Thursday that it will recognise a £39m pre-tax charge in its full-year income statement as it increases its provisions for legacy conduct costs by £403m.

The increase in the conduct provision relates to an updated forecast of the costs of finalising the remaining cases within CYBG's PPI remediation programme and a revised estimate of the expected level of walk-in PPI claims and the cost of customer redress between now and the time bar in August 2019.

The lender, which was spun off from National Bank of Australia, said that under an agreement it has with its former parent, it is required to fund 9.7% of the £403m provision increase, with the balance funded by NAB, hence the £39m charge.

CYBG expects this to impact the FY2017 Common Equity Tier 1 capital ratio by around 20 basis points as at 30 September, with the group's CET1 ration remaining "comfortably within" its 12-13% guidance range.

Further details will be provided in the group's full-year results on 21 November.

In the meantime, Numis said it has reduced its FY2017 reported net profit after tax estimate by 32% to £59m and now reckons the group's CET1 ratio will fall to 12.5%.

"In our view, this once again highlights the significant amount of work that needs to be done to clean up such an old and sprawling business, something we believe is not fairly reflected in the group’s current valuation.

"We remain concerned that a normalisation of impairments, rising competition and Brexit uncertainty will make it difficult for CYBG to achieve its 2019 target of 'double digit' return on tangible equity."

At 1000 BST, the shares were down 4% to 303.20p.