Banking giant Santander has continued its retreat from riskier parts of the mortgage market but said it had made strides in winning more business customers.
The lender's profits slumped 22% in the first three months of the year to £282m, driven lower by the rising cost of deposits and higher expenses.
The bank shrunk its loan book by £2.3bn during the quarter as its net mortgage lending fell by £2.5bn. But it said that followed a deliberate decision to do less interest-only lending and cover more of its mortgages with customer deposits.
Santander also saw a surge in mortgage arrears, with "non-performing loans" increasing to 1.83% of assets from 1.51% a year earlier following a lending spree between 2007 and 2009. The Spanish-owned bank was an active player in the business banking market during the quarter.
Its corporate loans increased 11% to £20.4bn, including a 15% surge in lending to small and medium-sized enterprises (SMEs).
The bank said its growth will be organic rather than acquisitive, after it pulled out last year from a deal to buy more than 300 branches from Royal Bank of Scotland.