SHARES in Clydesdale Bank owner CYBG plunged nearly five per cent after the institution revealed it has set aside a further £350 million to deal with PPI (payment protection insurance) claims, as the legacy conduct issue continues to plague the UK’s major banks.

The extra provision was revealed as CYBG said it received a higher than forecast surge in complaints in the wake of a high-profile advertising campaign featuring Terminator actor Arnold Schwarzenegger, reminding consumers of the final PPI claim deadline of August 2019.

The additional provision means CYBG will “fully utilise” the balance of funding available under its conduct indemnity deed with National Australia Bank (NAB), which kicked in following its separation from its former parent when it floated two years ago. It means CYBG will now have to shoulder all further exposure to PPI on its own.

A total of £1.7bn of conduct indemnity was provided by NAB under the deed. Of the fresh £350m set aside, £148m will be provided for by the deed, with the balance funded by CYBG.

The bank said that, because of the extra provision, its income statement for the six months ended March 31 will include a charge of £202m. It expects that to result in its core equity tier 1 capital ratio being dented by 100 basis points, taking it below its guidance range of 12% to 13%.

Analyst Gary Greenwood at Shore Capital said: “Without doubt, this is a bit of a disaster for CYBG, with the original indemnity provided by National Australia Bank failing to provide the full protection that it was originally anticipated to deliver.

“It also raises questions as to read across elsewhere, notably in respect of Lloyds Banking Group, which has the biggest exposure to PPI of the quoted UK banks. However, Lloyds has only recently updated its PPI assumptions so, arguably, CYBG may be a little behind the curve rather than vice-versa. Lloyds is due to report Q1 results on April 25, when we will find out for sure.”

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CYBG said it received around 59,000 complaints in the six months to March 31, with numbers peaking in January, declaring that heightened media coverage and increased activity by claims management companies also drove the upsurge in complaints. A further burst of the advertising campaign, led by the Financial Conduct Authority, is expected.

As well as receiving a surge in customer-initiated complaints, the bank said its review of the final cases under its proactive customer remediation programme proved to be more complicated and time-consuming than initially anticipated, leading it to increase the provision required to close out the programme.

Within the £350m of extra provisions, £88m will cover costs relating to closing out the final cases of the bank’s remediation programme. Some £186m has been set aside for around 110,000 additional customer-initiated complaints the bank expects to receive before the August 2019 time bar, with £76m earmarked to cover the cost of administering the redress programmes.

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

The fresh PPI provision made by the institution come after it said in November that it had increased its funding for “legacy conduct costs” as they stood on September 30 by £403m.

It has now at aside a total of £2.5bn for PPI claims following the £350m announced yesterday.

The bank is due to announce its interim results to the City on May 15. Shares closed down 15.2p at 289.2p.