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Santander profits boosted by write-back and UK mortgage boom - but bank warns on UK recovery

·2-min read
A Santander branch. (REUTERS)
A Santander branch. (REUTERS)

Santander’s third quarter profits were boosted by write-backs from pandemic-era provisions, continued momentum in the mortgage market, and changes to its popular 123 current account, the Spanish bank said today.

Pre-tax profits rose 19% to £687 million in the quarter. The jump came as the bank wrote back £100 million from loss provisions taken during the pandemic. It takes total write-backs so far this year to £170 million.

Operating costs in the quarter also fell by 7% to £579 million. The bank has been embarking on a cost cutting drive that includes relocating its headquarters to Milton Keynes and shutting over 100 UK branches. Santander said today that £666 million of transformation spending had realized £404 million in cost savings to date.

In its core business, the bank was boosted by strong demand for mortgages as the UK’s property market continues to see surging prices despite the end of the Stamp Duty holiday. Santander has lent £5.2 billion in mortgages so far this year. Chief financial officer Jose Garcia Cantera told Bloomberg TV the bank was seeing the strongest demand for UK mortgages in “many, many years.”

Chief executive Nathan Bostock said in a statement: “ We have built on our position as the UK’s third largest retail mortgage provider, delivering £5.2 billion of net mortgage growth in a competitive market as well as an increase in customer deposits.”

Net interest income rose 4% in the third quarter. The bank put the performance down to changes in its 123 current account. The bank cut the interest offered on balances held in the account from 0.6% to 0.3% at the start of the year.

The strong quarter puts Santander’s UK franchise on track for a good year. Income is up 22% to £3.4 billion so far this year and pre-tax profit is 363% to £1 billion.

Despite the good momentum, Santander cautioned that there were cloud on the horizon for the UK economy. The bank said: “ We anticipate the ongoing effects of Covid-19, supply chain disruption and dislocation in the labour market are likely to have an impact on the sustainability of the recovery while inflationary pressures and the impact on interest rates are likely to have implications for bank earnings.”

Bostock said: “Despite a more positive economic environment, conditions remain uncertain and a number of factors could impact the pace of recovery. While the pandemic’s trajectory over the winter remains unclear, I believe we are well positioned to grow and to support our customers over the years ahead, with strong capital and liquidity and proven balance sheet resilience.”

Santander said in April that Bostock was set to leave his role in charge of the UK franchise by the end of the year to take up another role elsewhere in the bank. There is still no word on his replacement, suggesting his departure date may yet be pushed back.

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