Higher costs hit profits at Santander’s UK arm

Santander UK has revealed a sharp decline in quarterly profits after being hit by higher costs and a fall in interest income.

Picture: PA

Net mortgage lending at the Spanish-owned bank fell by £2.5 billion during the first three months of the year. But it stressed that had followed a deliberate decision to do less interest-only lending and cover more of its mortgages with customer deposits.

Operating income for the three months to 31 March fell to £971 million, down 10 per cent on the same period last year, while operating costs edged up 3 per cent to £553m. Charges for bad loans fell sharply to £130m, but that could not prevent a 22.3 per cent drop in pre-tax profits to £282m for the first quarter.

Chief executive Ana Botin said: “Looking forward, I expect greater stability in our operating environment, in the context of a UK economy which remains subdued. We will continue our support of UK families and businesses and to act as a strong competitor on the high street.”

The group said business banking would remain a key focus and it plans to double its network of business banking centres from 36 to 72. Deposits from business customers grew by £1.2bn to £13.9bn.

Parent company Banco Santander saw its profit slump 26 per cent to €1.2bn (£1bn) but it said profits are returning to “normal”.