Barclays reported a 33% drop in half-year profits to £2.6 billion after it took a £1 billion hit to cover compensation for customers who were mis-sold payment protection insurance.

The hit comes after the High Court decided that new rules on the mis-selling of PPI could be applied retrospectively and the British Bankers' Association pulled an appeal against the decision.

It means banks must contact those they believe may have been mis-sold in the past.

Lloyds Banking Group made a provision of £3.2 billion, Royal Bank of Scotland set aside £850 million and HSBC earmarked £270 million.

Only last week, Santander revealed PPI mis-selling had cost it £540 million, taking its profits after tax and the PPI charge to £300 million (see the Santander £540 million news story).

However, Barclays's underlying performance – stripping out the PPI provision – revealed profit growth. Without it, Barclays would have seen profits increase 24% to £3.7 billion in the period.

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Barclays profits hit