Yahoo Finance Santander UK profit slides amid mortgage price war and rate cut expectations
Santander UK has reported a 29 per cent slump in profit as the boost from higher interest rates fades and a fiercely competitive mortgage market forces it to offer better deals to customers.
The UK arm of Spain’s largest bank posted a pretax profit of £391m for the first three months of 2024, down from £547m during the same period last year.
Europe’s banks reached a peak in profitability last year on the back of interest rate hikes, but this tailwind has died down as policymakers hold borrowing costs and are expected to start lowering them in the coming months.
Santander UK’s net interest income (NII) – the difference between what it generates from loans and pays out on deposits – fell 11 per cent year-on-year to £1.05bn, which it said was largely because of higher customer deposit costs after the pass-through of 2023 base rate changes.
NII was the source of 91 per cent of the bank’s total income last quarter. Meanwhile, its net interest margin fell four basis points from the previous quarter to 2.07 per cent. This figure was 2.21 per cent a year ago.
Santander UK, one of the country’s largest home loan providers, and its rivals have lowered their mortgage rates this year as they compete for business in a smaller market and price in future interest rate cuts.
The bank’s mortgage lending fell £2.5bn to £172.7bn during the quarter, which it explained was as a result of a “decision to optimise balance sheet returns”.
Meanwhile, it said the same strategy resulted in customer despots falling by £300m “with seasonal first quarter outflows largely offset by deposit inflows”.
Mike Regnier, Santander UK’s chief executive, said the results were “in line” with the bank’s expectations.
He added: “The recent fall in the rate of inflation will be welcomed by our customers who continue to face cost of living pressures. Our prudent approach to risk and targeted support has meant that in a challenging environment, levels of arrears have remained low.”
Santander UK’s impairment charge for potential bad loans fell 69 per cent year-on-year to £19m as it noted an improved economic outlook for borrowers and expected lower unemployment and house prices.
Analysts at RBC have estimated that Santander UK could be on the hook for around £1.1bn in compensation fees tied to the Financial Conduct Authority’s review into now-banned motor finance commission arrangements.
The lender said that while it could see “certain charges” tied to the review or future claims and complaints, it did not recognise a “legal or constructive obligation” that would currently require a provision and noted “significant inherent uncertainties regarding the existence, scope and timing of any possible outflow”.
The bank’s wider group saw an 11 per cent year-on-year rise in net profit to €2.85bn (£2.43bn), broadly in line with analysts’ expectations, as a continued boost from higher interest rates and cost control measures offset an rise in provisions.
Santander said it was on track to meet its 2024 targets, including mid-single-digit revenue growth and a 16 per cent return on tangible equity, a key measure of profitability for banks.
The bank’s shares fell as much as 2.7 per cent on Tuesday morning.
