Lloyds nearly triples its provision for car finance mis-selling to £1.2bn, slashing annual profits.

Lloyds Banking Group has ramped up its provision for the growing car finance mis-selling scandal, setting aside a staggering £1.2bn—nearly triple its initial estimate.

The banking giant is bracing for a wave of compensation claims, adding £700m on top of the £450m already earmarked for potential payouts. The issue stems from concerns that lenders failed to disclose how commissions were structured in car finance deals, potentially leading customers to pay more than necessary.

Despite the hefty provision, Lloyds’ CEO Charlie Nunn insists the case is not on the same scale as the PPI scandal, which cost the bank over £21bn. “This is our best estimate at this stage,” he said, adding that Lloyds remains in a strong financial position.

However, the impact on profits is clear—Lloyds reported pre-tax earnings of £5.97bn for the year, down from £7.5bn in 2023, amid a weakening UK economy and falling interest rates.

The Supreme Court is set to rule in April on whether car finance customers were misled over commission payments. If the decision goes against lenders, banks could be hit with billions in compensation claims, echoing the fallout from PPI.

Lloyds, which owns car finance firm Black Horse, is the most exposed among UK banks. Barclays and Santander have also set aside provisions—£90m and £295m, respectively—but Lloyds faces the biggest potential payout.

Despite the controversy, Lloyds’ share price rose following its results, with analysts citing the bank’s overall resilience. However, uncertainty looms over the final cost of the scandal, with potential long-term repercussions for the industry.