Belfast Telegraph

Santander warns Brexit vote marks end of UK banks' recent stability

Santander warned the Brexit vote "marked the end" of a recent era of stability for UK banks as they face the prospect of near-zero interest rates and wider economic woes.

In the lender's half-year report, boss Nathan Bostock said the Bank of England's move to slash rates to a new all-time low of 0.25%, with more cuts likely on the way, would make it even harder for the group to make returns on mortgages and savings.

The Spanish-owned group delivered a blow to around 3.5 million savers on Monday when it announced it was halving interest rates on its popular 123 current account after the base rate cut earlier this month.

It was accused of "kicking savers in the teeth", while experts said other high interest accounts were set to follow suit.

The half-year report comes after Santander - which has reportedly put in a formal bid to buy the 300 Williams & Glyn branches that Royal Bank of Scotland is offloading - posted interim results last month showing half-year pre-tax profits rose 16% to £1.1 billion in the UK.

But its net interest income, which is a key profit driver for banks, fell to £1.77 billion from £1.78 billion a year earlier.

Owner Banco Santander said group-wide net interest income fell 8.6% to 7.57 billion euro (£6.57 billion) in the first half.

In its latest report, Santander UK cautioned its profit margins would fall further over the rest of the year and said it would keep a tight rein on costs.

Mr Bostock said: "The UK referendum on EU membership on June 23 2016 marked the end of a period of relative stability for the UK banking sector."

He added record low rates will "create a challenging environment for income growth".

It said Britain's decision to quit the European Union had thrown the wider economy into a period of "significant uncertainty".

The group added its profits were "strongly linked to the health of the UK economy", which could impact earnings in its mortgage business and commercial property arm, which is facing fears of a price crash following the Brexit vote.

Santander signalled possible further branch cuts as it confirmed it was " constantly looking to simplify our processes and to streamline our operations", although it has no plans in place for widespread closures among its 847-strong network.

The group shut five branches in the first six months of 2016.

It did not join its rivals in upping its bill for the payment protection insurance (PPI) scandal, despite the City watchdog recently revealing a deadline for claims was set to be later than planned.

But it said claims were expected to surge to 1.2 million from £993,000 as at the end of June and said cash put by to cover compensation would "remain under review".

Its total PPI bill now stands at £1.5 billion.