Santander UK has seen half-year profits slump by almost a third after being knocked by shrinking mortgage lending and higher savings rates, but is hoping for a boost from “tailwinds” over the final six months.
The Spanish-owned high street lender reported a 31% drop in pre-tax profits to £804 million in the first half of 2024.
Mortgage loans slumped by £4.4 billion over the half year, while its net interest income – the difference between the interest it generates from loans and pays out to savers – fell 11%.
This came after it forked out more to savers in the first three months of the year following interest rate increases.
But the group said it had since taken “pricing” action to make savings rates less attractive, which has seen customer deposits fall by £5.6 billion.
This also helped profits increase by 6% quarter-on-quarter to £413 million in the three months to June 30, although the out-turn was 52% lower than a year earlier.
Mike Regnier, chief executive of Santander, said: “Our first half financial results were in line with our expectations, with a more positive trajectory reflecting improvements in the second quarter.”
He added the group is expecting “the impact of our pricing actions” to help provide “net interest margin tailwinds” over the second half.
Lenders have seen profits fall back in 2024 from bumper returns seen in the past two years as competition in the mortgage and savings market has heated up.
Santander is the first out of the stalls this week with its half-year results, with Lloyds Banking Group and NatWest also expected to report lower profits when they report interim figures on Thursday and Friday respectively.
Santander said credit impairment charges – cash set aside for loan losses – fell 43% in the first half thanks to an improved outlook for the wider UK economy.
But it said it is now pencilling in two interest rate cuts rather than three in 2024, which it forecasts will see house prices rise at a slower pace of 2.5% this year.
Despite the lower impairments, Santander revealed it was seeing more borrowers fall behind with their repayments over the past six months, although it stressed they remain “low compared to historic trends”.
The results come amid a growing mortgage price war as lenders reduce rates in anticipation of cuts from the Bank of England.
On Wednesday, Nationwide launched a sub-4% deal for a five-year fixed mortgage, with others expected to follow suit.
Mr Regnier declined to say if Santander would return with a mortgage deal offering less than 4%, but told the PA news agency: “We re-price our mortgages every week and do keep a very close eye.”
He added: “We make sure we remain competitive.”
He said the bank saw the chance of a rate cut when the Bank of England next decides on August 1 as being “50/50”.
He said there were still concerns over wages and what will happen to public sector pay under a Labour government, which could push up inflation.
But he said the “expectation is that the next change will be a downward one, although the timing is still uncertain”.
The wider Banco Santander group also reported results on Thursday showing a record profit of 3.2 billion euros (£2.7 billion) for the second quarter, up 20% on a year earlier, thanks to strong retail banking results in its key markets of Spain and Brazil.
It raised its annual outlook for revenue growth on the back of the first half performance.
