The UK arm of Santander said today that it had set aside more than half a billion pounds to cover the costs of mis-selling payment protection insurance to its customers.
Chief executive Ana Botin said the £538 million charge hit the bank's financial results in the six months to June, but still hailed its "strong track record of profitability".
The British arm of the Spanish banking giant saw pre-tax profits dip 3% to £1.2 billion in the six months to June as higher regulatory costs dented earnings. Profits after tax and the PPI charge were £300 million.
The hit comes after the High Court decided that new rules on the mis-selling of PPI could be applied retrospectively and the British Bankers' Association pulled an appeal against the decision.
Santander UK is the latest bank to reveal its PPI charge after Lloyds Banking Group made a provision of £3.2 billion, Royal Bank of Scotland set aside £850 million, Barclays £1 billion and HSBC earmarked 440 million US dollars (£270 million).
Santander UK said its results had also been hit by Basel III requirements - European rules which require banks to hold more capital to protect themselves against future financial crises.
Gross mortgage lending was down 21% in the period from £12.3 billion last year to £9.7 billion.
But the group heralded its commitments to small business lending, made under the Project Merlin agreement with the UK Government.
Santander said it had exceeded its Merlin lending targets in the first half, delivering gross lending of £4 billion, of which £2.1 billion went to small and medium sized enterprises (SMEs).
The Merlin agreement, unveiled in February, followed protracted talks between the top five banks and the Treasury over key issues such as bonuses and lending.
Under Project Merlin, the banks said they would increase lending available to SMEs to £76 billion this year and overall business lending to £190 billion.
Ms Botin said the bank had delivered a robust performance and taken significant steps to improve customer service.
She said: "Financial results are, however, being adversely impacted by costs of liquidity, term funding and low interest rates.
"In line with other UK banks, a further provision for payment protection insurance remediation has also been made.
"Notwithstanding these factors, Santander UK has delivered profit in the first six months, maintaining its strong track record of profitability and strengthening its balance sheet."
Santander UK earlier this month revealed it had returned all its call centres in India to the UK following complaints from customers.
The parent company Banco Santander reported a 21% decline in profits of 3.5 billion euros (£3.09 billion).