FirstRand jacks up UK car loan provision to $993 mln, puts Aldermore in play

By Kirstin Ridley

April 7 (Reuters) - FirstRand FSRJ.J, one of South Africa's biggest banks, said on Tuesday it planned to exit from its UK challenger bank Aldermore, blaming a costly and "deeply flawed" British motor finance redress scheme.

The financial services group raised its provisions for mis-sold motor loans by 510 million pounds to 750 million pounds ($993.4 million) days after the UK markets regulator finalised the total bill for a mass motorist compensation plan at 9.1 billion pounds - one of Britain's costliest financial scandals.

"Cognisant of protecting shareholder value and ensuring Aldermore's future success, the group will work with the Aldermore board and respective regulators to facilitate an orderly ownership transition," FirstRand said in a statement.

Banks including Lloyds LLOY.L, Santander SAN.MC, Barclays BARC.L, Close Brothers CBRO.L and the finance arms of vehicle manufacturers have collectively set aside billions of pounds for compensation.

DEALING WITH LIABILITIES

The UK's Financial Conduct Authority (FCA) accuses the industry of inadequately disclosing commissions and contractual ties between lenders and car dealerships that it said encouraged brokers to lift vehicle loan rates between 2007 and 2024.

But the watchdog is seeking to draw a line under a 17-year scandal by balancing its duty to protect consumers with both government pressure to boost industry growth and competition and the risks of costly and time-consuming legal challenges.

"Our scheme provides certainty and is the most cost efficient and orderly way to deal with liabilities that exist, no matter what," a spokesperson said, adding that a record 41 billion pounds was lent in motor finance in 2025 and the regulator saw no further major redress events on the horizon.

"Without a scheme, the cost to lenders of dealing with complaints through the (independent) Ombudsman or courts would be over 6 billion pounds higher."

FirstRand, which bought Aldermore in 2017, said it now expected group full-year normalised earnings after the motor provision to fall between 4% and 9%.

Other banks have said they are assessing their financial impact. Lloyds, which has set aside almost 2 billion pounds, said last week its provision might not need changing - but that it would update the market when it releases first-quarter results in April.

Analyst attention has turned to Close Brothers, whose shares tumbled last month on a short-seller report that it had misrepresented its exposure. The specialist lender, which has set aside around 300 million pounds, said it strongly disagreed with the report.

($1 = 0.7550 pounds)