Santander UK profits slip on weak pound

Santander has warned of a challenging year ahead in the UK after its profits in 2016 dived following the EU referendum.

Earnings in Britain fell by almost 15%, largely because of the weakening of the pound against the euro following the Brexit vote in June.

The introduction of an 8% bank corporation tax surcharge also hit UK earnings, it said.

However, its global profits rose by 4% after a strong performance in Brazil.

Overall, the Spanish bank said it earned 6.2bn euros (£5.3bn) in the period while increasing its customers by four million to 125 million.

Profit before tax climbed in nine of its 10 main markets, while net earnings jumped 9.5% in Brazil, its largest market.

Currency movements

But in the UK - which accounts for a fifth of the bank's profits - earnings plunged 14.7% to 1.68bn euros, although excluding currency movements, the drop was just 4%.

Sterling has fallen to a near three-decade low since the UK voted to quit the EU last year.

The bank also saw a sharp slowdown in the number of new customers signing up to its popular 123 current account after it halved the top interest rate in November.

It added 483,000 new 123 customers in 2016, down from about a million in 2015.

The bank also put aside another £114m in the fourth quarter for compensation linked to the payment protection insurance (PPI) mis-selling scandal.

However, Santander UK told the BBC it had increased lending and was supporting the UK economy "to a greater extent now than it was in 2015".

"On an underlying basis, our statutory performance has actually improved," it added.

Looking ahead, it said it expected to see a "changeable and more challenging" trading environment this year.

"The effects of higher inflation and continued economic uncertainty could result in slower UK economic growth in 2017 than experienced in the past three years," it said.

"We expect our corporate lending to be slower than in recent years, consistent with forecasted slowdown in the UK economic growth."