High street banking giant Santander has reported an 11% hike in UK annual profits, but revealed the pressure of intense competition for mortgages and savings business.
The group, which has snapped up a raft of UK players such as Alliance -amp; Leicester and Abbey in recent years, said net mortgage lending - new loans less redemptions - fell 27% in 2010, while savings deposits plunged by more than a third.
It grew pre-tax trading profits in the UK to £2.3bn, but it warned that banking margins were being hit as it faces increasing costs to attract savings and meet new regulatory requirements.
Despite the challenges, its UK arm helped offset an even tougher market for the wider Spanish group, which saw bad debt charges drag annual profits down by 8.5% to €8.18bn (£6.96bn).
The Spanish parent company confirmed plans to spin off its burgeoning UK arm by floating it on the stock exchange in the second half of this year.
It has grown in the UK through a series of acquisitions, most recently agreeing to buy the 318 branches being offloaded by Royal Bank of Scotland to appease regulatory concerns on state aid.
The figures mark the first from the UK banking sector, with Santander's British rivals due to start reporting later this month.
Newly-appointed UK chief executive Ana Botin, whose predecessor Antonio Horta Osorio quit to join rival Lloyds Banking Group, said profits growth was healthy despite a "challenging operating environment" in the UK.
Trading income rose around 4% last year, limited by increased regulatory costs and capital requirements.
The group said UK banking margins would be knocked further in 2011.
Santander boasts 90 million clients and 13,660 offices.