Santander profits down 9 per cent at £1.6 billion

Santander UK said today that new rules which force it to hold more cash to protect against future financial crises were behind a 9% fall in profits and warned the impact is likely to be felt until 2013.

The UK's fifth biggest bank said regulatory costs had increased by £253 million as profits in the nine months to September slipped to £1.65 billion.

Santander 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.

The UK arm of the Spanish bank has 25 million customers and 1,400 branches after a series of purchases of British banks including Abbey National and Alliance & Leicester.

The bank said net profits for the nine months fell to £659 million from £1.28 billion after a £538 million provision for mis-selling payment protection insurance announced earlier in the year.

Santander UK said it had also overhauled its customer complaints process, recruited 1,100 customer facing staff and relocated its call centres back in the UK to improve its service.

The bank admitted it still had more to do to improve customer service to levels of satisfaction in other areas of the bank. The group 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, which would take its share of the market to 9% from 4%. The deal is expected to complete towards the end of 2012.

The group increased net lending to SMEs by £1.7 billion or 27% 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 £2.7 billion 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.

The group added 650,000 current accounts and has a target to add an extra three million by 2014.