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Santander UK’s profits crater due to coronavirus impairments and lower mortgage rates

Profit before tax shrank to £114mln in the first quarter from £270mln a year ago

Santander UK’s profits crater due to coronavirus impairments and lower mortgage rates

Santander UK’s profits cratered 58% in the first quarter of 2020 as the Spanish bank’s subsidiary took a sizeable charge for expected bad loans from the coronavirus crisis.

As well as an 8% year-on-year decline in operating income to £964mln from lower levels of lending and interest rates, the bank increased its provisions for loan impairments by £165mln.

Of this, £122mln was a charge against coronavirus as the lender said loan loss allowances were up around 14% compared to pre-crisis levels.

This led to reported profit before tax shrinking to £114mln in the three months to end-March from £270mln a year ago.

“Our first quarter results continued to be impacted by lower mortgage margins as well as the Covid-19 crisis,” said chief executive Nathan Bostock.

The ongoing transformation programme has been slowed by the need to focus on the impact of the virus, which the lender said will impact its planned efficiency savings.

Directors also expect income to be further impacted by the lower UK base rate and “significantly reduced new business related to the lockdown affecting the UK economy,” although this is expected to partially be offset by changes to deposit pricing which will take effect in the second half of the year. 

While the bank warned that a more severe economic slowdown than forecast could also increase credit impairment losses, Bostock added: “While it is too early to reliably estimate the financial and business impacts this crisis will have on our 2020 results, we believe that with strong foundations in place, including capital and liquidity, we will continue to be able to support our customers, our colleagues and the wider society.”

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