Santander's UK arm helps offset Spanish woe

The group, which expanded into Britain by snapping up high street names including Alliance & Leicester and Abbey, saw UK profits reach 2.3 billion, but reported intense competition for mortgages and savings business.

The bank's net mortgage lending fell 27 per cent last year, yesterday's results revealed, while savings deposits plunged by more than a third - and both saw the sharpest falls during the second half of 2010.

Trading income rose 4 per cent, limited by increased regulation and capital requirements.

The group said UK banking margins would be knocked further in 2011.

Newly-appointed UK chief executive Ana Botin, whose predecessor Antonio Horta Osorio quit to join rival Lloyds Banking Group, said profits growth was healthy despite a "challenging operating environment".

Santander recently agreed to buy 318 branches being offloaded by Royal Bank of Scotland, and Botin said that was part of an ambition to be "a full-service commercial bank, as we complement our strong retail offering with an increased presence for SMEs".

"Our aim is to increase our lending to UK businesses and create new jobs as we open more business centres to serve them," she added.

Santander grew lending to small businesses by 26 per cent last year.

The lender's Spanish parent company, which saw bad debt charges drag annual profits down by 8.5 per cent to €8.18bn (6.96bn), confirmed plans to spin off its burgeoning UK arm by floating it on the stock exchange in the second half of this year.

Yesterday's figures marked the first from the UK banking sector, with Santander's British rivals due to start reporting later this month.