UK borrowers could struggle to repay their debt as the economy worsens, Santander says Banco Santander

Britain’s central bank Santander said a looming recession could make it harder for borrowers to repay their debts as it set aside more cash to protect itself against potential defaults.

A recession is likely in 2023 while the outlook for the UK economy remains uncertain, the UK arm of the Spanish bank said on Thursday.

Despite the government’s support for energy bills, rising prices continue to eat away at disposable income, which “could affect loan repayments,” it said.

The warning was issued alongside the bank’s full-year results, which showed the lender set aside £321m in 2022 to cover potential defaults, compared with £233m a year before the start of the Covid restrictions. .

The higher figure is due to a “deteriorating economic environment”, including higher interest rates, lower economic growth, and falling house prices, which Santander predicts will fall by around 10% to levels not seen since 2021.

“These challenges are expected to continue for households and businesses through 2023 and could impact credit quality,” the bank said, referring to borrowers’ ability to repay their loans and mortgages.

On Wednesday, Virgin Money set aside £66m to cover a possible rise in bad debts in the first quarter. However, the rival bank said repayments have so far been steady.

Provisioning for Santander’s potential defaults weighed on the lender’s profits, which rose just 2% to nearly £1.9bn in the year to December.

The steady growth was despite a 12% rise in net interest income to £4.5bn, as rising interest rates allowed it to pay more for mortgages and loans.

Profits were also reduced by £421m set aside to cover fraud and fraud charges, as well as £108m in regulatory fines from the Financial Conduct Authority. In December, the UK regulator fined the bank for “serious and persistent” gaps in anti-money laundering controls between 2012 and 2017.

Santander UK said it was hit by a “significant reduction” in mortgage lending at the end of the year as interest rates rose to 3.5%.

Mike Regnier, chief executive of Santander UK, said: “The global economic environment and the rising cost of living have created challenges for many of our clients and customers. Our focus has been on providing targeted and practical support, including advice on household budgets and a tool for SMEs. [small and medium sized enterprises] To help them overcome the current inflationary pressures.

Overall, the Spanish banking group reported an 8% drop in profits to €15bn (£13bn).

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