Santander UK profits drop 50% on PPI payouts

Santander UK’s pre-tax profits fell 50% in the first nine months of this year, as the effects of the recent payment protection insurance (PPI) mis-selling scandal continue to take their toll.

New figures today revealed the Spanish bank’s UK arm made a total pre-tax profit of £926 million (€1.1 billion) in the first nine months of 2011, down from £1.9 billion (€2.1 billion) during the same period in 2010.

Earlier this year the bank was forced to set aside £731 million to compensate people who have been mis-sold PPI policies.

According to the report Santander UK made an attributable profit of £659 million in the first nine months of 2011. If you deduct the post-tax PPI provision of £538 million made in the second quarter however, profit was £1.198 billion – just 8.6% less than in 2010.

This fall in profit is a result of higher regulatory costs, which had a negative net impact of £253 million compared to the same period in 2010, Santander claimed.

New international 'Basel III' regulations mean that capital requirements for banks will increase to a minimum of 7% by 2015, though the Independent Commission on Banking recently recommended a higher requirement for UK banks of 10%. Maintaining low interest rates while the Bank of England base rate continues to sit at an all-time low of 0.5% has also contributed to a fall in income, Santander said.

The results also showed a 27% increase in loans to SMEs in the last twelve months. And though according to Santander the number of residential mortgages had succeeded in remaining ‘stable’ in a weak market during the first nine months of 2011, the value of new mortgages is still down £2,400 million on last year. Personal loans continued to decrease in line with policy, down 15% on last year.

The broader Santander Group posted attributable profit of €5.3 billion for the first nine months of 2011, 12.8% less than in the same period of 2010. Again the bank attributed the loss largely to the PPI provision in the UK.