Profits up but Santander's mortgage lending slumps

The Spanish-owned group, which took advantage of the downturn to snap up Alliance & Leicester, Abbey and Bradford & Bingley's branches in recent years, said net mortgage lending – new loans less redemptions – fell 27 per cent to 5.5bn in 2010.

But the weak appetite for mortgages from would-be buyers meant Santander's total market share of new home loans in 2010 slipped just 0.9 per cent to 17.7 per cent.

It grew pre-tax trading profits in the UK to 2.3bn, but it warned that banking margins were being hit as it faces increasing costs to attract savings and meet new regulatory requirements.

Despite the challenges, its UK arm helped offset an even tougher market for the wider group, which saw bad debt charges drag annual profits down by 8.5 per cent to 8.18bn euros (6.96bn).

Its Spanish parent confirmed plans to spin off its UK arm by floating it on the stock exchange in the second half of this year. Santander has grown in the UK through acquisitions, most recently agreeing to buy the 318 branches being offloaded by Royal Bank of Scotland.

Santander's new UK chief executive Ana Patricia Botin recently admitted the bank has "a lot of work to do" to improve service standards after recent figures on customer complaints. The bank notched up 216,158 complaints in the first six months of 2010 – the most of any banking brand – according to the Financial Services Authority.

The bank is recruiting 1,000 staff to help improve its customer service, with the bulk of these expected to be in place by the end of March. Ms Botin, whose predecessor Antonio Horta Osorio quit to join rival Lloyds Banking Group, said profits growth was healthy despite a "challenging operating environment" in the UK.

The group admitted UK banking margins will be knocked further in 2011. The bank saw net deposits slump 35 per cent to 9.6bn. Deposits halved in the second half of 2010 to 5bn.

Santander's lending to small and medium-sized enterprises (SMEs) was a bright spot, growing by 26 per cent to 8.5bn. That helped lift its market share of the SME market from 2.7 per cent to 3.6 per cent.

The bank said its lending to businesses in Yorkshire increased by 71 per cent, with new facilities for Yorkshire businesses totalling 353m. It was unable to provide comparative 2009 figures.

"Our aim is to increase our lending to UK businesses and create new jobs as we open more business centres to serve them," said Ms Botin.

Santander's results mark the start of the UK banking reporting season, with its British rivals due to start reporting later this month.