Santander sees profits boosted but prepares for cost-of-living loan hit

High demand for mortgage lending has helped boost profits for Santander, but the UK banking giant set aside more than £100 million to cover loan defaults amid the cost-of-living crisis.

The Spanish-owned bank reported that its profit before tax jumped 32% to £993 million in the six months to June 30, up from £751 million a year earlier.

Interest rate rises and its highest level of mortgage lending thanks to a buoyant housing market meant the bank took in 11% more income from net interest.

But Santander put by £118 million in credit impairment losses as it prepares for a deteriorating economy, with high interest rates and rising inflation expected to affect customers’ ability to repay loans.

Chief executive Mike Regnier said consumers have already cut back on non-essential spending such as coffees and gym subscriptions since the cost of living worsened.

He told the PA news agency that the bank has seen an increase in the number of customers with savings of less than £100, in a worrying sign that people are eating into cash reserves to fund their everyday lives.

There has also been a rise in the amount of people seeking advice using the bank’s online chat box, which Mr Regnier said allows them to get support but remain anonymous.

He added that the bank has contacted around a million customers who are most at risk of financial difficulty.

But he told PA that the lender has not yet seen any signs of significant stresses reflected in consumer credit, with no notable increase in customers falling into arrears this year.

The bank predicted that inflation continuing to surge, a turbulent political environment, new Covid strains, and a shrinking labour force could all contribute to a worsening economic climate.

Santander said it expects economic growth to slow and the base rate of interest to reach 2.25% in 2023.

But if inflation remains stubbornly high and fails to ease back, interest rates could peak at 5% in 2024 as the Bank of England looks to try to bring inflation back to target, the lender warned.

The firm’s results showed it also managed to reduce costs in the first half of 2022, cutting expenses by 12% from £1.34 billion to £1.19 billion.

The UK company has previously announced steps to reduce operational costs by axing 111 branches and cutting jobs by reducing 40% of head office space.

Bosses confirmed there are no current plans for further branch closures or staff reductions.

But it had to fork out more on fraud reimbursement this year as customers fell victim to scams, resulting in £63 million in charges.

Furthermore, the bank reported £2.9 billion of outstanding bounceback and Covid business loans given to pre-existing customers and said it expects to mitigate potential fraud losses.

Profit before tax for Banco Santander reached 7.91 billion euros (£6.65 billion), up 4% from the first half of 2021.