Banking: Santander takes pummeling from Carillion loans

Profits at Santander's UK operation have been dragged down by the bank's exposure to collapsed construction giant Carillion.

The high street lender booked £203m in impairment losses in the year to December 31, primarily made up of loans to Carillion gone bad.

It meant that pre-tax profit last year came in at £1.8bn, down 5 per cent from £1.9bn in 2016.

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Carillion’s liquidation earlier this month left a £900m debt pile, a £590m pension deficit and hundreds of millions of pounds in unfinished public contracts.

Santander boss Nathan Bostock said: “Profitability was impacted by the losses incurred on our exposure to Carillion, which offset otherwise strong growth.

“We are working closely to support customers who have suffered from their collapse.”

A string of other banks that lent to the firm, including RBS and Lloyds, are also expected to take hits when they announce results in the coming weeks.

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Santander said adjusted profits fell 4 per cent to £1.95bn in the period but net interest income, a key metric, grew 6 per cent to £3.8bn.

However, the lender also flagged rising inflation and a more challenging economic environment in the UK in the year ahead.

“For the UK economy, some downside risks could materialise, as a result of higher inflation and low wage growth reducing households’ real earnings.

“This may restrict consumer spending which, when combined with a potentially more challenging macro environment, adds a degree of caution to our outlook.”

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However, it also noted that the labour market remains strong and low unemployment, easing inflation and “nominal wage growth” could help.

Santander added that net mortgage lending grew by £600m after it took “pricing actions” in a competitive environment.

It also took a £109m charge to cover claims for payment protection insurance (PPI) compensation.

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