Santander profits drop to £1.6bn after pressure on mortgage lending margins and new regulation
SANTANDER has posted a double-digit percentage drop in UK profits after it was stung by higher regulatory costs, with the high street banking giant also pointing to stiff competition in the sector.
The Spanish-owned lender, which has announced plans to shut 140 branches, posted UK pre-tax profit of
£1.6 billion, 14% lower than the £1.8bn reported a year earlier.
On an underlying basis, pre-tax profit declined to £1.7bn in 2018 from £2bn.
Net interest income fell 4% to £3.1bn due to pressures on new mortgage lending margins.
The bank incurred higher regulatory costs related to ring-fencing to keep personal and small business banking services separate, open banking, PSD2 – the European Union’s second payment services directive, and MIFID II.
It was also hit by a
£32.8 million fine by the City watchdog last month for “serious failings” in processing deceased customer accounts.
Net mortgage lending – gross loans less repayments – came to £3.3bn in 2018, which Santander said was its strongest lending in more than three years “despite the highly competitive market”.
The Common Equity Tier 1 (CET1) capital ratio, a key measure of a bank’s financial strength, grew by 1% to 13.2%.
Customer deposits fell to £142.1bn from £143.8bn due to a £3.5bn decline in savings balances.
Nathan Bostock, chief executive of Santander
UK, said: “Our 2018 financial performance reflects our strategy of selective growth, while actively managing costs in the competitive and uncertain operating environment. In the current uncertain environment, we will do everything we can to support our customers and deliver on our purpose of helping people and business prosper.”
Santander said it is preparing for all outcomes from Britain’s departure from the European Union, adding that its Brexit preparations are “comprehensive” and take into account “the nationality and location of our people and customers, contract continuity, financial markets infrastructure such as clearing, access to Euro payment systems as well as third party services and flows of data into and out of the European Economic Area”.
The lender is cautious about its outlook for 2019 citing risks associated with trade restrictions, geopolitical uncertainty and slower growth in developed economies as well as a “highly competitive banking market and demanding regulatory agenda in the UK”.
Santander expects net mortgage lending for 2019 to be broadly in line with last year and that the banking net interest margin will be lower than the 1.8% seen in 2018 due to competition in new mortgage pricing.