Santander’s 2018 pre-tax profit drops on higher costs

High street banking giant Santander has posted a double-digit drop in UK profits on higher regulatory costs.

The Spanish-owned lender posted UK pre-tax profit of £1.6 billion, 14% lower than the £1.8 billion reported a year earlier.

On an underlying basis, pre-tax profit declined to £1.7 billion in 2018 from £2 billion. Net interest income also fell 4% to £3.1 billion, partly due to pressures on new mortgage lending margins.

Santander made several provisions related to payment protection insurance redress and other conduct issues associated with the sale of interest rate on derivatives.

Last month, Santander was fined £32.8 million by the City watchdog for “serious failings” in processing deceased customer accounts.

Net mortgage lending – gross loans less repayments – came to £3.3 billion 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 £142.1 billion from £143.8 billion due to a £3.5 billion 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 continue to do everything we can to support our customers and deliver on our purpose of helping people and business prosper across the UK.”

Snatander said that it is also 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 due to risks of trade restrictions, geopolitical factors and slower growth in developed economies as well as due to 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.

It also anticipates that costs will increase slightly due to increased investment in the business.