The cost of attracting savers, and the eurozone crisis, sent profits at Santander’s UK arm tumbling by 20% during the first half of the year.
Pre-tax profits in the first six months of 2013 were £141 million lower year-on-year at £549m, hurt by the cost of luring deposits with high savings rates.
The Spanish-owned bank also saw wholesale funding costs rise due to Europe’s sovereign debt woes.
Santander also continued its retreat from riskier parts of the mortgage market, shrinking its home loans book by almost £11 billion year-on-year to £152.3bn. Profits were squeezed by higher funding costs.
The bank said a long-planned stock market flotation of its UK arm is “off the table” and will not happen in the short or medium-term, delayed by tough markets and higher regulation.
Instead, Santander is increasing its share of small business lending, growing its book of business loans by £2bn to £21bn, helped by a 12% surge in lending to small and medium-sized companies.
The bank said customer deposits edged up £1.2bn to £150.5bn during the year. Its 123 current account has grown customers by 600,000 over the past six months to 1.9 million.
Provisions for bad debts fell by a third to £235m.