By Carolyn Cohn and Iain Withers
LONDON (Reuters) - Lloyds Banking Group (L:LLOY) will set aside up to an extra 1.8 billion pounds ($2.2 billion) to settle mis-selling claims in Britain's costliest consumer banking scandal, and said it was suspending its 2019 share buyback program.
Banks are putting aside more money to pay claims against mis-sold payment protection insurance (PPI) following a rush of consumer enquiries about compensation ahead of the deadline on Aug. 29.
PPI policies were sold alongside a personal loan or mortgage to cover repayments if borrowers fell ill or lost jobs, but many were unsuitable.
The PPI saga has already cost lenders more than 36 billion pounds in payouts, with analysts estimating the final bill could top 50 billion pounds.
RBS (L:RBS) said last week it faced additional costs of up to 900 million pounds, while Clydesdale Bank made a fresh 300-450 million pound provision.
As Britain's biggest domestic lender, Lloyds has been the most exposed to PPI and has already paid out more than 20 billion pounds.
Lloyds said on Monday it had received 600,0000-800,000 requests for information about PPI per week in August, well above its expectations of around 190,000 per week.
As a result, it expects to set aside a further 1.2-1.8 billion pounds in its third quarter results to cover payouts.
The bank's shares fell more than 2% in early trading.
Lloyds also said it had received a claim submitted by the Insolvency Service's Official Receiver on behalf of bankrupt consumers, pushing costs higher.
It added the charge would dent its profitability and scrapped guidance for a return on tangible equity of around 12% this year. It also warned the increase in its capital ratio in 2019 would be below its 170-200 basis points per annum guidance.
The lender made a PPI provision in its second quarter of 650 million pounds.
Lloyds had been expected to make a further provision following its rivals' moves, with analysts at KBW saying they had downgraded the bank last week partly due to the expected charge. KBW said the top end of the charge at 1.8 billion was marginally better than its worse case scenario.
Lloyds was given some breathing space on capital in May, when regulators reduced its required core capital ratio to 12.5% from 13%, equating to around 1 billion pounds.
Lloyds is continuing to target paying a dividend and said it would make a decision on surplus capital at the end of the year.
(The story corrects claim numbers to per week in paragraph seven.)