The Brexit vote has created instability for the UK banking sector and the wider economy, according to one of the UK’s biggest high street lenders.
Spanish-owned Santander issued the warning in a half-yearly trading update a day after it cut the interest rates on its popular 123 current account by half to 1.5%.
“The UK referendum on EU membership on 23 June marked the end of a period of relative stability for the UK banking sector,” said Nathan Bostock, chief executive of Santander’s UK operations.
Santander also listed the risks to its business, including the possibility that interest rates are cut to below zero. The Bank of England cut rates to 0.25% this month, with its governor, Mark Carney, saying he is not a fan of negative rates.
Even so, banks are making contingency plans for the possibility of below-zero rates. Santander said: “We are also taking action to be prepared for the possibility of negative interest rates in the UK, including a review of our systems and models, and to ensure we manage any potential impact on our customers.”
Banks’ preparations for negative interest rates were highlighted by the Guardian last month when it emerged that NatWest, part of Royal Bank of Scotland, had written to business customers to warn that it might charge interest on deposits. RBS insisted it had no plans to do so.
Bostock had also given the same assurance when he announced last month that Santander’s operations in the UK had made £1.1bn profit in the first six months of 2016, up 16% on same period last year. He said at the time that the bank’s terms and conditions, in theory, allowed it to charge savers to hold deposits although it would need to inform larger corporate customers of any such change.
In Tuesday’s more extensive half-year report Santander said its profits could come under pressure from Threadneedle’s stimulus package intended to ward off any economic downturn after the Brexit vote.
The bank also said it was too early to know whether it needed to increase its provision for payment protection insurance in light of the City regulator’s decision to delay the introduction of a cut-off point for claims, also announced since the publication of its results on 27 July.
Lady Shriti Vadera, chair of Santander’s UK operations and a former Labour minister, said: “The UK economy has entered a period of significant uncertainty. The UK banking sector is facing some headwinds as the economy deals with external pressures in the short and medium term.
“In addition, against the backdrop of large-scale regulatory change already underway, the sector has to navigate the loss of regulatory uncertainty as the UK negotiates new trade relationships with the European Union.”
Santander said on Monday it planned to halve the interest rate on its 123 current account from 1 November. The account has previously offered – at 3% – one of the most competitive rates on the high street.
Santander said this decision was made “in response to the lower for longer bank rate environment, as evidenced by the Bank of England’s recent monetary policy actions and the continuing challenges in the market”.
This article was written by Jill Treanor, for theguardian.com on Tuesday 16th August 2016 13.10 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010