Investors will be hoping UK banks will report solid earnings as lenders await the outcome of a critical court judgment that could unleash a major car finance compensation scheme.

Lloyds Banking Group will kick off the sector’s half-year earnings with its results on Thursday, followed by NatWest Group on Friday.

It comes at a significant juncture for motor finance lenders, with the Supreme Court set to deliver a final judgment on alleged mis-selling by the end of the month.

If the UK’s Financial Conduct Authority (FCA) concludes that customers have lost out from widespread failings by firms, it could set up an industry-wide redress scheme.

Lloyds has said it is setting aside £1.2bn to cover potential costs and compensation in relation to the issue, with the banking giant exposed to the market through its Black Horse business.

Santander said it had put aside £295m as a provision to cover potential payouts as well as legal costs.

Gary Greenwood, an equity analyst for Shore Capital, said he was anticipating a “common sense outcome” from the Supreme Court ruling.

If firms are found to have mis-sold car loans, the ruling may allow for a proportionate redress scheme that “punishes the worst offenders” but allows others to “get off with a lighter touch, or maybe don’t have a charge or redress at all”, Greenwood said.

He added: “It’ll be painful for Lloyds, but they generate about £4bn of surplus capital every year, so it’s something that they could handle.”