Santander UK has reported a significant 14% rise in annual pre-tax profits, reaching £1.51 billion for the year 2025. This financial growth comes despite the bank allocating an additional £183 million to cover costs related to the ongoing motor finance mis-selling scandal, bringing its total provisions for this issue to £478 million over the past two years.
Motor Finance Scandal Costs and Uncertainties
The bank had previously cancelled its third-quarter results to assess the impact of the Financial Conduct Authority's redress scheme. In its latest announcement, Santander cautioned that significant uncertainties remain regarding the nature, extent, and timing of redress payments for affected customers. The bank stated, "The ultimate financial impact could be materially higher or lower than the amount provided."
This situation reflects the mounting expenses faced by the banking sector from the scandal, which involved millions of customers sold car loans with concealed commission. Competitor Lloyds Banking Group has set aside £800 million in its third quarter, raising its total provision to £1.95 billion. Under the FCA's proposals, approximately 14 million car finance deals could be eligible for compensation, with an average payout of £700 per agreement.
Cost-Cutting Measures and Branch Closures
In its full-year results, Santander laid the groundwork for further cost-cutting in 2026. This warning follows last week's announcement of plans to close another 44 branches, putting nearly 300 jobs at risk. The bank anticipates cost efficiencies driven by simplification and automation of its business operations. After these closures, Santander will maintain 244 full branches across the UK.
Acquisition of TSB and Leadership Changes
Santander expects to complete its £2.65 billion acquisition of smaller rival TSB in the first half of 2026, having previously indicated the first quarter. Departing chief executive Mike Regnier commented, "This landmark acquisition will create the UK's third-largest bank by personal current account balances, enhancing the profitability of Santander UK and creating stronger competition and choice for customers."
The group revealed that Mahesh Aditya, currently group chief risk officer at Banco Santander, will take over as chief executive of the UK bank on March 1, succeeding Mr Regnier ahead of the TSB deal completion.
Parent Company Performance and Economic Outlook
The UK bank's figures were released after its Spanish parent, Banco Santander, disclosed a $12.2 billion agreement to purchase American competitor Webster Bank. Banco Santander posted a better-than-anticipated 7.4% increase in net income to €3.76 billion for the fourth quarter.
Santander UK also reported that bad debt charges nearly trebled to £193 million last year and are expected to climb further in 2026 as they return towards pre-pandemic levels. The lender forecasts a modest increase in UK unemployment in 2026 as companies reduce workforces in response to tax increases and escalating wage costs.
Economically, Santander is forecasting UK growth to decelerate to 1% this year, down from an anticipated 1.4% in 2025, while house prices are expected to appreciate at a slower rate than in the previous year.
Regulatory and Industry Challenges
The FCA's compensation scheme proposals have faced considerable opposition from lenders. Mr Regnier previously urged the Government to intervene, warning that the scheme could affect the car finance market and broader motor sector, potentially resulting in significant redundancies.
In its latest results, Santander stated that under current redress scheme proposals, there is "an increased possibility that a remedy is sought to be imposed which extends beyond reversing any damaging financial consequences caused by any unfair relationships." The FCA is anticipated to publish the findings of its consultation into the proposed compensation scheme in March.
