Santander UK reported a sharp drop in profit in the first half of the year but said there were signs of growing tailwinds for the rest of 2024.
The Spanish bank’s UK arm reported pretax profit of £804m in the first six months of the year, down from £1.2bn in the same period last year.
Profit was eroded by higher deposit costs, which contributed to an 11 per cent fall in net interest income compared to last year. Net interest income is the revenue a bank makes on its loans minus the interest it pays out on deposits.
As interest rates have remained higher for longer, and customers have sought out better deals, banks have increasingly had to pay out more in interest to attract depositors.
However, Santander UK’s net interest margin actually widened compared to the previous quarter, climbing to 2.09 per cent.
This meant interest income was unchanged on the first quarter of the year despite the annual fall. Santander put this down to “active margin management”.
The bank noted customer deposits fell by £5.6bn in the first half due to savings outflows after “repricing actions” in the second quarter.
The mortgage market proved challenging, with mortgage loans falling by £4.4bn in the first half of the year.
With interest rate cuts on the horizon, lenders have been jostling to offer customers the best deals on new mortgages.
Santander’s credit impairment charges were down 43 per cent on last year given the “improved economic outlook”. Impairment charges reflect the funds put aside for bad loans.
“Our first half financial results were in line with our expectations, with a more positive trajectory reflecting improvements in the second quarter,” Mike Regnier, chief executive at the bank, said.
Looking forward Santander said the combination of the pricing actions it has taken and the structural hedge would provide a “tailwind” in the second half of the year.
The wider group reported a 20 per cent increase in net profit year-on-year thanks to a strong performance from its retail business in Spain and Brazil.