Santander profits up 13% after boost from mortgage lending and current accounts

High street bank Santander has posted a 13% rise in profits after it grew mortgage lending and attracted more current account customers.

The Spanish-owned lender said UK pre-tax profits increased to £532 million in the first three months of 2016, up from £470 million a year earlier.

It increased net mortgage lending - total advances less redemptions - by £1.3 billion in the quarter, which compares with a £400 million fall a year ago.

Net lending to new businesses rose 10%.

Its 1/2/3 World offering notched up around 131,000 customers in the first quarter, with wider current account balances up £3.6 billion to £56.8 billion as it benefited from customer switching.

First quarter figures were boosted by the absence of any further compensation charges for the payment protection insurance (PPI) scandal, while it also saw a sharp fall in the number of loans turned sour, with fewer borrowers falling behind on repayments.

But owner Banco Santander - the biggest bank in the eurozone - suffered a more difficult first quarter as group-wide net profit fell 5% to 1.63 billion euros (£1.26 billion) in the first quarter.

It was hit by currency exchange rates and a deepening recession in Brazil, which is its second biggest market.

Nathan Bostock, chief executive of Santander, said the UK bank made a "solid start" to the year.

But he joined rival Barclays, which also reported first quarter figures today, in adding a note of caution ahead of the EU referendum.

He said: "We expect the improving trend in UK lending growth seen in 2015 to continue, but are conscious of prevailing market volatility from macro-economic and geopolitical factors, uncertain prospects for policy interest rates, and the upcoming UK referendum on EU membership."

Figures showed the group's net interest margin came under pressure as the Bank of England base rate remained at the historic low of 0.5% and with fewer borrowers on its standard variable rate.

The bank, which has 852 branches across the UK, said this was expected to fall further as rates are not predicted to rise in 2016 amid a slowdown in the global economy.

Santander's first quarter performance was helped by a 75% fall in bad debts, while there were no further PPI provisions put by, against £450 million set aside in the previous three months.

The PPI hit in the fourth quarter sent Santander's annual profits falling by 4.1% to £1.3 billion in 2015.

Santander said in its latest update it was "comfortable" with the amount so far set aside for PPI, although it said it kept provisions under review, particularly with the expected rush from claimants ahead of the two-year deadline for compensation.

Santander and Barclays kicked off the latest round of trading updates from the major UK high street players, with Lloyds reporting on Thursday and Royal Bank of Scotland on Friday.

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