Santander puts aside £295m to cover possible motor finance claims

Publishing delayed third-quarter numbers, Santander said pre-tax profits had fallen to £143m from £413m in the previous three months.

It blamed the slide on a £295m provision, which offset "active price management and a steadily improving economic environment".

Last month the Court of Appeal ruled that it was illegal for banks to pay commission to a car dealer without the customer’s informed consent. The Financial Conduct Authority is investigating potential mis-selling, and is expected to establish a compensation scheme in light of the ruling.

Santander said the provision would cover operational and legal costs as well as any potential awards.

But it warned: "There are currently significant uncertainties as to the nature, extent and timing of any remediation action if required, and the ultimate financial impact could be materially higher or lower than the amount provided."

Analysts believe redress and legal costs could see the motor financing industry facing a bill of between £20bn and £30bn. Earlier this year, Lloyds Banking Group - which owns motor finance provider Black Horse - set aside £450m.

Looking ahead, Santander - which delayed publishing its quarterly numbers until the court ruling - said: "We intend to continue to prioritise profitability and our core banking franchise through price discipline and planned balance sheet optimisation, resulting in lower mortgage lending and customer deposits in 2024.

"Deposit pricing actions taken improved banking net interest margin further in the third quarter, and will provide a tailwind over the coming quarters."

Net interest income in the third quarter rose 4% in the last three months, boosted by active margin management, while its CET1 capital ratio increased to 15.4%.

In the year to date, however, net interest income was 10% lower year-on-year, at £3.2bn, while pre-tax profits fell 45% to £947m.