Santander UK Group Holdings (LON:BNC) posted a 36% drop in pre-tax profit for the first half, blaming the “highly competitive” mortgage market.
The UK arm of Spanish parent Banco Santander said statutory profit before tax fell to £575mln in the six months to the end of June from £903mln last year as operating income declined 8% to £2.1bn.
The net interest margin – the difference between interest earned on loans and money paid out on deposits – decreased 11 basis points to 1.69% as the lender offered mortgages with lower interest rates to fend off competition.
Customer loans rose to £200.6bn from £199.9bn with growth in retail mortgages and car finances offsetting a decline in corporate loans. Customer deposits increased to £174.8bn from £172.1bn.
The common equity tier-1 capital ratio roes to 13.8% from 13.2%.
Santander has spent £113mln on its restructuring plan in the year to date. The strategy has involved closing branches, improving the digital offering and reshaping the corporate business.
It expects to have spent £400mln on the overhaul by the end of 2021 with the benefits to come through in the next two to three years.
An additional £100mln is likely to be invested “over the medium-term” with a similar payback period, Santander said.
The bank said it expects income pressure to continue to impact its results but “significant” cost savings from the transformation plan will largely offset this over the medium-term.
Tough mortgage competition and Brexit
"These are uncertain times, and our profitability has been impacted by a fall in income due to the highly competitive UK mortgage market,” said chief executive Nathan Bostock.
“Against this external backdrop, we continue to invest in our business in order to strengthen our competitive position and improve efficiency which has resulted in additional strategic transformation costs."
He added: "We are confident that our strategy, combining prudence with decisive actions, will deliver significant benefits over the medium-term and leave us strongly positioned for the future."
Santander said it was preparing for the increased likelihood of a no-deal Brexit as Boris Johnson looked set to become the next prime minister. The bank is maintaining high levels of liquidity to ensure we it is well equipped for the impact of Brexit uncertainty.
The outlook for the 2019 year remains broadly unchanged.