Need to hold more cash hits profits at Santander

Santander UK blamed new rules forcing it to hold more cash to protect against future financial crises for a 9 per cent fall in profits yesterday, and warned the impact is likely to be felt until 2013.

Britain's fifth-biggest bank said regulatory costs had increased by £253m as profits in the nine months to September slipped to £1.65bn.

It said "all banks in the UK were facing headwinds", and warned it expects lower interest rates and higher costs of borrowing to affect profits over the next two years.

Santander has 25 million customers and 1,400 branches in the UK after the Spanish group bought banks including Abbey National and Alliance & Leicester.

Profits for the nine months fell to £659m from £1.28bn after a £538m provision for mis-selling payment protection insurance announced earlier in the year.

Santander UK said it had also overhauled its customer complaints process, but admitted it still had more to do to improve customer service to levels of satisfaction in other areas of the bank. It was the UK's third most complained about bank behind Barclays and Lloyds in the first half of the year.

The group is in discussions to buy more than 300 branches from RBS, which will add 30,000 small and medium-sized enterprise (SME) customers, taking its share of the market to 9 per cent from 4 per cent.

Santander UK increased net lending to SMEs by £1.7bn or 27 per cent this year and said it is on target to meet its commitment under the Project Merlin lending agreement between the Government and banks.

Retail customers pulled out £2.7bn of savings as the bank decided to use the money markets for its funding rather than stay in an increasingly fierce battle for savings accounts.

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