UPDATE 4-Lloyds and Barclays hit by $4 bln insurance mis-selling claims

(Adds Barclays provision)

* Lloyds expects to set aside an extra 1.2-1.8 bln stg in Q3

* Lloyds suspends 2019 share buyback, scraps 2019 ROTE
target

* Barclays to set aside up to 1.6 bln stg

By Iain Withers and Lawrence White

LONDON, Sept 9 (Reuters) - Lloyds and Barclays
on Monday said a surge in late claims could see them
pay out around $2 billion more each to settle Britain's
costliest consumer banking scandal, the mis-selling of payment
protection insurance (PPI).

Lloyds on Monday said it will set aside up to an extra 1.8
billion pounds ($2.2 billion) to settle PPI claims, while
Barclays later said it would set aside between 1.2
billion pounds and 1.6 billion pounds.

Lloyds also said it was suspending its 2019 share buyback
programme.

The huge provisions show how banks in Britain are still
battling with the legacy of the scandal, even after the Aug. 29
deadline for consumers to complain, as a rush of customer
enquiries in the run-up to that date forced them to set aside
more compensation money.

PPI policies were sold alongside a personal loan or mortgage
to cover repayments if borrowers fell ill or lost jobs, but many
were unsuitable.

Britain's High Court in 2011 ruled that consumers could
retroactively seek compensation for mis-sold policies.

The subsequent rush of claims has been a boon for consumers,
egged on by a rise in so-called claims management companies,
with lenders having paid out more than 36 billion pounds in
total and the final tally expected to top 50 billion pounds.

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.

LAST MINUTE CLAIMS

Lloyds said on Monday it had received 600,000-800,000
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.

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 it
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.

Barclays said it still aims to hold its core capital level
at its 13% target by year-end.

Lloyds made PPI provisions worth 650 million pounds in the
first half of this year, meaning the total combined cost for
2019 could hit as much as 2.45 billion pounds, equivalent to 41%
of its 6 billion pounds pretax profit last year. The bank set
aside 750 million pounds for PPI in 2018.

Analysts at broker KBW said the top end of the Lloyds charge
at 1.8 billion pounds was marginally better than their worst
case scenario, while the Barclays provision was higher than the
700 million pounds they had predicted.

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.

($1 = 0.8154 pounds)
(Reporting by Iain Withers and Lawrence White; Additional
reporting by Carolyn Cohn; Editing by Rachel Armstrong, Mark
Potter and Deepa Babington)