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Category : Business

Royal Bank of Scotland expected to announce compensation fund and may increase PPI mis-selling provision

Royal Bank of Scotland is expected to set aside more than £100m to cover the cost of compensating customers who lost out when the bailed-out bank’s computer systems crashed in June.

The cost of the computer failure comes amid fresh speculation about the future of the ownership of the bank before its results on Friday, which will also be scrutinised for any extra provision for payment protection insurance mis-selling. An extra £125m was set aside in the first quarter of the year, taking its total PPI mis-selling provision to £1.2bn. The major banks have already set aside more than £8.5bn for the mis-selling of the insurance. Other provisions could be made to compensate any customers who lost out as result of mis-sold interest rate swaps, which were intended to help small businesses protect themselves against interest rate rises.

Chief executive Stephen Hester is expected to again apologise to the up to 13 million customers of RBS, NatWest and Ulster Bank who could not be certain how much money they had in their accounts in the biggest computer problem ever incurred by a UK bank, which was first discovered on 19 June.

The provision, which is expected to be included in the bank’s second quarter figures, is also expected to cover the overtime costs incurred by parachuting in extra staff for extended opening hours during the week and the weekend opening, at the height of the problem.

Ulster Bank’s customers were inconvenienced for more a month after the computer problem which the bank has said was caused by a botched systems software upgrade. Some NatWest and RBS customers experienced difficulties for about 10 days.

While the bank has about 13 million retail customers, compensation is expected to be handed out to a far smaller number, although even that will run to tens of thousands of customers.

Hester has told the Guardian that RBS might have been able to avoid its computer crisis if more had been spent on upgrading existing systems rather than on developing new applications. “RBS has seen a big mushrooming in spending on technology. With hindsight maybe a bit more of that increase in spend should have been in the core taken-for-granted systems that work every day. Some of our focus was on the new things people want,” Hester said last week.

The other UK-based banks involved in the Libor manipulation scandal are yet to make any provision to cover the cost of potential fines, and Hester has already made clear that the bank is braced for a fine but that he does not yet know the size.

RBS is among four banks to have reached an agreement with the Financial Services Authority over interest rate swap mis-selling, but has not yet quantified the cost of any compensation for customers.

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