Santander profits tumble 37% on PPI and shake-up costs

Santander has revealed UK profits slumped by 37% last year after taking a hit on the payment protection insurance (PPI) scandal and costs of its branch shake-up.

The Spanish-owned high street lender saw 2019 pre-tax profits drop to £981 million for 2019 following £169 million in PPI charges after a rush in claims ahead of the August deadline.

It also booked £155 million in costs for reorganising its branch network, which saw it shut 140 sites last year, putting 1,270 jobs at risk, though it was able to redeploy around 40% of affected staff.

UK boss Nathan Bostock told the PA news agency the group was not planning any further branch closures for the “foreseeable future”.

He added that while profits came under pressure, efforts to become more competitive in mortgages helped it notch up its highest growth in home loans for a decade.

Santander’s results showed net mortgage lending – gross loans less repayments – grew by £7.4 billion to £165.4 billion in 2019, though this came at a cost as profit margins came under pressure amid intense competition on rates.

The group also grew customer savings deposits by £5.7 billion – its strongest growth in three years.

Mr Bostock said the Conservative election win had given some welcome political certainty in the UK.

“The confidence is gradually returning out there,” he said.

“It’s a positive situation for the UK now and I would look to us to be growing at around market.”

But the group said it was still “somewhat cautious” over the outlook for 2020, with economic growth set to be subdued amid ongoing intense competition in the sector.

Mr Bostock said: “The environment for the banking sector remains challenging, with ongoing competitive pressures and a demanding regulatory agenda.”

The bank is expecting mortgages to grow more in line with the market over the year ahead, at around 3%, as it focuses less on price and more on service and customer retention.

It said profit margins will continue to be weighed down in 2020, but more slowly as rates are expected to be more stable.

The UK performance weighed on the wider Banco Santander group, which posted a 17% fall in net income to 6.5 billion euros (£5.5 billion) for 2019.

But the Spanish group revealed a solid performance in the final quarter, with net profit up 35% at 2.8 billion euros (£2.4 billion) thanks to its fast-growing business in Latin American and the US.

The figures come after the Financial Conduct Authority (FCA) on Tuesday asked UK lenders to explain their overdraft pricing decisions, after a string of providers – including Santander – pegged their new rates at around 40%.

Overdraft providers are introducing the new rates as they look to comply with rules being introduced by the FCA from April 6, which will prevent providers from charging higher prices for unarranged overdrafts than for arranged overdrafts.

Mr Bostock said the group was “very happy” to respond to the FCA’s request.

He also insisted that “six out of seven of our consumers who use an overdraft will pay less under the new charging structure”.