Santander UK has seen its profits slump by 44% in the first quarter of the year after setting aside nearly another £180 million for the motor finance mis-selling scandal. The high street lending giant reported pre-tax profits of £202 million for the first quarter, down from £358 million a year ago.
Motor finance provisions and economic outlook
Profits were hit by an additional £179 million provision for motor finance compensation, bringing the bank's total expected bill so far to £633 million. The group also booked a £73 million charge for bad debts, up 40% year-on-year, as it cut its outlook for the UK economy due to the Iran war, which it said will likely lead to higher inflation, weaker growth, and higher unemployment.
Santander now expects the economy to grow by just 0.5% in 2026 in its base case scenario, followed by 1% expansion next year, while unemployment is forecast to reach 5.5%. Inflation is expected to rise due to higher costs from the Middle East conflict, but the bank's central forecast is for interest rates to remain at 3.75% this year before falling to 3.25% by the end of 2027.
CEO comments and cost-cutting measures
New chief executive Mahesh Aditya, who took over from Mike Regnier on March 1, said the group is not yet seeing significant borrower distress from the Iran war cost spike. He stated: "While we are not yet seeing any significant impact of the current uncertain global economic environment on our customers, we have put measures in place including a proactive outreach programme offering support, in addition to our ongoing commitment to the UK mortgage charter."
The group said the motor finance scandal impact was partly offset by cost-cutting and reiterated plans for further savings over the year "driven by simplification and automation of our business." Operating costs fell by 7% in the first quarter, and Santander revealed plans earlier this year to close another 44 branches, putting nearly 300 jobs at risk.
Motor finance redress and TSB takeover
Santander said at the weekend it would not challenge the Financial Conduct Authority's plans for motor finance redress and would pay compensation for its portion of unfair deals. Payouts are due on about 12.1 million mis-sold deals with hidden commission from various lenders at an average of £829 each, the watchdog said in March as it unveiled final plans for its redress scheme.
Mr Aditya said the completion of the bank's £2.65 billion takeover of smaller rival TSB was "expected imminently" after recent regulatory approval. He commented: "The acquisition represents the single-largest inward investment in the UK banking sector for over 15 years and underlines Banco Santander's commitment to the UK. The deal is expected to accelerate Santander UK's transformation and enhance competition in the UK, benefiting both customers and shareholders."
