Banks' PPI risks cut but not eliminated, says Deutsche Bank

Part-way through its consultation on the process, the Financial Conduct Authority took a step closer to drawing a line under the payment protection insurance scandal with the proposal of a two-year deadline plus a new ad campaign to inform customers of the deadline to be funded by the banks.

The two key proposals - of the 2018 deadline and guidance on the Supreme Court’s decision on the Plevin v Paragon Personal Finance case - "appear unchanged versus the original statement", Deutsche said.

"The proposed deadline should help stop the market forecasting PPI redress into perpetuity, but is far enough out that it is unlikely to change consensus forecasts."

For Plevin, analysts suggested the proposed guidelines were not as onerous as some other analysts had feared over the summer, with, for example, the FCA revealing it considered applying the new Plevin rules for products not covered under the Consumer Credit Act 2006, but decided against this wider approach.

"Overall, we think the announcements help reduce some of the tail risks of an open-ended PPI claims process."

After the FCA said PPI payouts in September reached £330m, lower than the same month last year but broadly unchanged from July and August, Deutsche said it expected claims to remain at around the £300-350m level over the next 12 months.

But analysts said they had added an extra £2bn of PPI charges for Lloyds over the next two years.

Combined with the PPI provision stock at £2.1bn recently, on unchanged third quarter PPI runrate, "this should be sufficient to cover Lloyds" until the end of the second quarter in 2017.

DB retained its 'buy' rating on Lloyds and Barclays, and 'hold' on HSBC and RBS.