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Santander UK warns over Brexit challenges despite 9% rise in profits

Published 26/10/2016

Santander UK said profit before tax jumped 9% to £1.6 billion over the nine months to September 30
Santander UK said profit before tax jumped 9% to £1.6 billion over the nine months to September 30

Santander UK has reported a rise in quarterly profit, but again warned that earnings could take a hit as a result of Brexit.

The Spanish lender's British branch said profit before tax jumped 9% to £1.6 billion over the nine months to September 30 compared with a year earlier, but said that figure slowed on a quarterly basis.

In the three months to September 30, pre-tax profit fell to £477 million, down from £496 million during the same period in 2015. It also marks a slowdown from the £546 million reported in the second quarter.

The bank said Brexit could end up denting earnings.

In its latest trading update, Santander UK said Britain's decision to leave the EU has resulted in economic uncertainty and market volatility, which is expected to continue.

Chief executive Nathan Bostock said: "Although we have not seen a material impact on our business in the short period since the EU referendum, we do expect a more challenging macroeconomic environment ahead.

"This increased caution has prompted us to revise our 2018 return on tangible equity, cost-to-income and NPL ratio targets, as disclosed at the 2016 Banco Santander strategy update in late September."

In the near term, the bank said it expects consumer confidence to drop and economic growth to slow, and cautioned that higher oil prices and a weaker pound were likely to result in higher inflation.

Sterling has fallen nearly 20% against the US dollar since the EU referendum.

Results also showed a pension hit following the Brexit vote, and comes as company schemes are hammered by falling bond yields.

Santander UK said the defined benefit pension scheme had fallen into a £258 million deficit, compared with a surplus of £483 million a year earlier.

The bank has also put aside an additional £30 million to cover costs related to the mis-selling of payment protection insurance, bringing its total provisions over the past nine months to £397 million.

The UK banking industry's PPI bill is already colossal, at more than £30 billion so far.

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