Santander UK's profit took a significant hit in the first quarter of 2026 as the bank made another substantial provision for the motor finance mis-selling scandal. The UK arm of the Spanish banking giant reported a pre-tax profit of £202 million for the first three months of the year, a decline of 44 per cent compared to the same period in 2025. This drop was primarily attributed to an additional £179 million provision set aside for the car mis-selling issue.
Motor Finance Provisions Reach £640 Million
The latest top-up brings Santander UK's total motor finance provision to £640 million. The bank's former UK chief, Mike Regnier, who was succeeded by Mahesh Aditya at the start of 2026, had previously criticized the City watchdog over the redress saga and called for government intervention. The Financial Conduct Authority (FCA) unveiled the final rules for its compensation scheme at the end of March, reducing the total industry bill from £11 billion to £9.1 billion. Santander has confirmed it will not legally challenge the scheme.
Cost-Cutting Regime Continues
In addition to the motor finance provisions, Santander UK's net interest margin—a key measure of lending profitability—contracted by eight basis points from the first quarter of 2025, landing at 2.22 per cent. The bank cited higher deposit costs as a contributing factor, which also led to a two per cent decline in net interest income to £1.1 billion.
However, operating costs improved by seven per cent to £638 million as the bank pressed ahead with its simplification and automation strategy. In January, Santander announced plans to close another 44 branches, putting 291 jobs at risk of redundancy, as it shifts focus to its digital offerings to keep pace with fintech competitors.
TSB Acquisition Nears Completion
Aditya revealed that Santander's landmark acquisition of TSB is expected to complete "imminently." He described the deal as "the single largest inward investment in the UK banking sector for over 15 years" and emphasized that it underscores Banco Santander's commitment to the UK market.
Santander agreed to acquire TSB for £2.6 billion in July 2025. The acquisition will add 5 million customers, £34 billion in mortgages, and £35 billion in deposits to Santander's portfolio, along with TSB's 218 branches.
