An increase in the number of payment protection insurance (PPI) claims means that three major UK banks are increasing the provisions they have set aside to repay customers who were mis-sold PPI.

Barclays, the Royal Bank of Scotland (RBS) and HSBC are all preparing to increase their provisions.

Lloyds Banking Group, which set aside the largest amount to cover potential PPI compensation, £3.2 billion, says it is monitoring the situation closely but has not decided to increase its provision at this time.

Customers were mis-sold PPI, which is a type of insurance that is designed to protect they become ill or lose their jobs.

This week saw a campaign launched by Which? and MoneySavingExpert.com to encourage consumers to make compensation claims themselves rather than doing so through claims management companies who take up to 25 per cent, plus VAT of the money that would otherwise be wholly refunded to customers.

However, part of the reason that the banks have decided to raise their provisions has been due to activity from claims management companies and the increased number of claims that have come in as a result.

Announcing its first quarter results, Barclays has increased its provisions by £300 million to £1.3 billion. 

RBS, which announces its first quarter results next week, is expected to raise its provisions against PPI compensation claims from £950 million.

Meanwhile, HSBC, which raised its provisions from £270 million to £400 million in February could raise its provision again if claims continue to remain at a high level.

The campaigns from consumer groups and the desire from claims management companies to make money by claiming on behalf of consumers means that banks across the board are re-assessing the demands they may face for compensation.

Initially, the Financial Services Authority (FSA) estimated that the amount of PPI compensation banks would face would be £4 billion. £2.5 billion has already been paid out to consumers and banks have set aside a total of £6 billion to cover PPI claims up until this point.

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