The UK arm of Spain’s Banco Santander reported a 14% drop in 2018 profit as a tough mortgage market squeezed margins.
Pre-tax profit at Santander UK fell to £1.57bn last year from £1.81bn in 2017, led by income and cost pressures.
READ: Santander to close a fifth of UK branches as more customers choose online banking
The net interest margin (NIM) – a key measure of banks’ profitability – decreased 10 basis points to 1.8% due to the impact of competition in new mortgage pricing and fewer customers staying on standard variable rates.
Despite the fierce competition, mortgages rose to £158mln from £154.7mln a year ago, marking its strongest lending in three years.
Net interest income edged down to £3.61bn from £3.80bn last year while non-interest income fell to £937mln from £1.12bn.
The common equity tier 1 capital ratio – a measure of balance sheet strength – rose 100 basis points to 13.2%.
For the 2019 financial year, the bank expects NIM to fall, mortgage lending to be broadly in line with last year and costs to “increase slightly” as it invests in its transformation and tackles tighter regulation and inflationary pressures.
The Spanish parent saw net profit rise to €7.81bn in 2018 from €6.62bn last year, slightly lower than the 47.83bn analysts were expecting.
As part of its transformation plan, the bank is shutting almost a fifth of its branches in Britain in response to the increasing uptake of online banking.
The UK arm will close 140 branches, bringing the total number across the country down to 614.