Santander UK profits rise but lender bracing itself for house price fall
Santander’s UK division was boosted by higher interest rates but the bank remained cautious looking forward, suggesting house prices could fall ten per cent taking them back to 2021 levels.
The Spanish bank’s UK business saw its pretax profit climb 11 per cent to £547m as higher interest rates continued to bolster its performance.
Santander’s net interest margin – which measures the difference between what the bank pays and receives in interest payments – widened to 2.21 per cent in the quarter helping interest income climb 12 per cent to £1.2bn.
It set aside an additional £9m in credit impairment charges due to the weaker economic environment. Other provisions rose 83 per cent to £86m mainly due to fraud redress
Despite the strong results, Santander remained wary in the face of economic uncertainty. It noted competition for deposits has increased meaning funding costs have risen “notably” over the last six months.
“Following rises in the base rate, we have seen the most competitive ISA period for several years and a further slowdown in the mortgage market,” chief executive Mike Regnier said.
The mortgage market trends at the end of 2022 also continued into 2023, the bank said, with applications down 37 per cent.
Santander expects house prices to decrease ten per cent over the course of the year, falling back to 2021 levels.
Across the group as a whole, Santander saw its profit climb just one per cent as it was held back by having to pay a €224m windfall tax to the Spanish government.
The full-year impact of the tax was recorded in the first quarter. Excluding the impact of the tax, the bank’s profit rose ten per cent.
As in the UK, Santander’s European businesses reported strong income growth thanks to the impact of higher interest rates. But these higher rates also forced it to increase loss provisions elsewhere, particularly South America. In Brazil for example, provisions increased 16 per cent year on year.