Santander UK has said the boost it has received from higher interest rates was likely to peak this year in a further sign that the boom that Britain’s banks have enjoyed from rising borrowing costs is starting to recede.
Higher rates propelled pre-tax profits at the bank, rising 16 per cent to £1.7 billion in the first nine months of the year, compared with the same period in 2022.
The lender’s net interest margin, which measures the difference between what it pays for deposits and charges on loans, also climbed to 2.23 per cent from 2.04 per cent a year earlier.
Yet Santander UK also cautioned that it expected its margin to have reached its peak this year. It adds to mounting evidence from across the banking industry that growing competition for savers’ deposits is starting to bite, eating into the returns that lenders have enjoyed as a result of higher rates.
High street banks have faced calls in recent months to improve the interest they pay to savers amid criticism that they have been profiteering from Bank of England rate rises. Savers have started to move their money around to take advantage of better deals coming on to the market and this, combined with lower mortgage margins, is putting downward pressure on lenders’ wider net interest margins.
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Santander UK said its deposits had fallen by £6 billion year on year to £190.5 billion over the nine months. However, the rate of decline slowed to £200 million in the third quarter as a result of “good deposit acquisition in September”, suggesting it had improved its deposit rates in response to stiffer competition.
Mike Regnier, the chief executive, said: “We provided competitive rates for savers, including a top-of-market easy access savings account.”
Better savings rates are a boost for households struggling with the cost of living crisis, which has been fuelled by rampant inflation and the rate rises the Bank has pushed through to bring price rises in the economy under control. The Bank’s base rate has risen from a record low of 0.1 per cent in November 2021 to a 15-year high of 5.25 per cent, and Threadneedle Street has signalled in recent months that rates are likely to remain at elevated levels for some time.
Santander UK said that it expected “high-for-longer interest rates to have a more pronounced impact on households and businesses”.
The business, which is part of the Spanish giant Banco Santander, is the UK’s fifth biggest retail bank and has been led by Regnier, the former boss of Yorkshire Building Society, since April last year. The Spanish group posted better-than-expected net profits of €2.9 billion for the third quarter, up by a fifth year on year.
