Quarterly Management Statement – Q1 2025

Santander UK Group Holdings plc

Quarterly Management Statement

for the three months ended 31 March 2025

Mike Regnier, Chief Executive Officer, commented:

"We carried good momentum from 2024 into Q1-25 as we continued to make progress on our strategic priorities. As part of this, we evolved our products and services to meet our customers' changing behaviours and needs, including becoming the first major lender to change our assessments of how much customers can afford to pay towards a mortgage, allowing them to borrow more.

The progress we are making drove improved business performance in the first quarter, with an increase in net interest income and a reduction in operating expenses. However, charges relating to changes to our branch network1 resulted in a lower profit before tax of £358m for the quarter.

Looking ahead, we will look to build on our positive momentum and will continue to work closely with Banco Santander to ensure that we harness the benefits of being part of a global business."

Q1-25 financial and business highlights

Focus on providing our customers with products and services that meet their needs; continued support for our communities

• First major lender to change our mortgage affordability assessments, following updated FCA guidance, allowing customers to borrow more.

• Continued to focus on customer service. Retail NPS2 continued to improve in the quarter; OneApp customer rating 4.7+ stars out of 5.

• Enhanced functionality across our fast-growing digital channels as customers continue to choose digital over traditional channels.

• Opened two new Work Cafés in Cheapside and High Street Kensington.

Q1-25 profit before tax reduced by £33m to £358m (Q1-24: £391m), driven by £63m in charges relating to changes to our branch network1

• Banking NIM3 of 2.30% was up 23bps (Q1-24: 2.07%), maintaining the momentum seen in the second half of 2024 (Q4-24: 2.25%).

• Net interest income increased 6%, driven by lower cost of deposits and supported by our structural hedge.

• Operating expenses were down 1%, due to simplification and automation of the business, partially offset by a £21m expense relating to changes to our branch network1.

• CIR3 of 54% improved 3pp, with higher income and lower costs.

• Credit impairment charges were up £33m, trending to pre-pandemic levels after a period of write-backs. Cost of risk3 of 5bps (Dec-24: 3bps).

• Provisions for other liabilities and charges were up 69%, driven by £42m in charges relating to changes to our branch network1.

• RoTE3 of 12.4% (2024: 8.8%), increased mainly due to the non-repeat of the Q3-24 provision relating to historical motor finance commission payments in Q1-25. We continue to monitor ongoing developments surrounding historical motor finance commission payments closely.

Customer loans and deposits were broadly stable in the quarter; LDR of 110% (Dec-24: 109%)

• Mortgage loans were unchanged in Q1-25 at £167.2bn (Dec-24: £167.2bn); higher gross mortgage lending in Q1-25 of £5.8bn (Q1-24: £3.1bn).

• Customer deposits were relatively flat in the quarter at £183.2bn (Dec-24: £183.4bn).

• Asset quality remains good. Stage 3 ratio3 of 1.34% was down 6bps from Dec-24; Arrears remain low.

Strong liquidity and funding, with our capital position maintaining significant buffers to regulatory requirements 

• CET1 capital ratio broadly stable at 14.7% (Dec-24: 14.8%); UK leverage ratio of 4.8% (Dec-24: 4.9%).

• Equivalent of £5.6bn in medium-term funding issued in Q1-25; we expect to issue £10-12bn in total for the year.

• LCR of 153% (Dec-24: 156%) reduced following TFSME repayments; liquidity pool of £50.3bn (Dec-24: £47.8bn).

Outlook

• We continue to anticipate a gradual return to net lending growth in 2025.

• Our structural hedge position and recent pricing decisions are expected to make the bank more resilient to Bank Rate reductions.

• We expect our cost of risk to continue to trend up towards pre-pandemic levels, following a period of credit impairment write-backs in 2024 which are not expected to be repeated.

• Transformation through simplification and automation of our business is expected to continue to drive cost efficiencies over 2025.

• We continue to monitor increasing risks from geopolitical events and the potential impact on our customers.

Notes:

1. See appendix for more on changes to our branch network.

2. See appendix for more on NPS.

3. Non-IFRS measure. See appendix for details.

Q1-25 profit before tax down 8% vs Q1-24

• Net interest income increased 6% YoY, driven by lower cost of deposits and supported by our structural hedge.

• Non-interest income was down 19%, mainly due to the timing of unrealised losses arising from hedging ineffectiveness.

• Operating expenses were down 1%, driven by cost savings from simplification and automation of the business and a lower headcount. Cost savings were partially offset by a £21m expense relating to changes to our branch network4.

• Credit impairment charges were up £33m, trending to pre-pandemic levels after a period of write-backs.

• Provisions for other liabilities and charges were up 69%, driven by £42m in charges relating to changes to our branch network4.

Notes:

1. Comprises 'Net fee and commission income' and 'Other operating income'.

2. Operating expenses before credit impairment (charges) / write-backs, provisions for other liabilities and charges.

3. Non-IFRS measure. See appendix for details.

4. See appendix for more on changes to our branch network.

Balance sheet summary1

• Mortgages: increased gross mortgage lending in Q1-25 of £5.8bn (Q1-24: £3.1bn). 

• Credit Cards: 55% (Dec-24: 56%) of customers repay their full balance each month. 

• Unsecured Personal Loans: average customer balance of £6k (Dec-24: £6k).

• Overdrafts: relatively small balance of £0.4bn (Dec-24: £0.5bn).

• Business Banking: includes £1.0bn (Dec-24: £1.1bn) of BBLS with 100% Government guarantee.

• Consumer Finance: 95% (Dec-24: 95%) of lending is collateralised on the vehicle.

• CCB: customers remain largely resilient with overall improvement in asset quality.

• Savings decreased following recent reductions in Bank Rate and repricing actions.

• Cost of deposits continued to fall from last year's peak.

Notes:

1. See appendix for detailed balance sheet.

Loans in Stage 2 and Stage 3 improved, highlighting underlying asset quality

• Decrease of loans in Stage 2 and 3 slightly offset by increases in Consumer Finance and unsecured retail lending.

• CCB loans in Stage 2 and 3 decreased, driven by overall improvement in asset quality.

ECL provision

• ECL provision increased by £11m to £881m (Dec-24: £870m), driven by a wholesale exposure in Consumer Finance and a small increase in Overdrafts.

• 3-month gross write-off utilisation of £48m (Q1-24: £47m; 2024: £230m).

Notes:

1. Non-IFRS measure. See appendix for details.

2. ECL for Corporate Centre rounds to nil.

Economic scenarios were updated for Q1-25 to reflect the latest market data, including expectations for inflation and Bank Rate

• Base Case scenario sees lower economic growth in 2025, due to a lower H2-24 economic performance and reduced consumer and business confidence.

• Upside scenario incorporates a quicker economic recovery.

• Downside 1 and Downside 2 scenarios capture the potential impact of weaker investment, the increasing risk from geopolitical events and the ongoing significant mismatch between job vacancies and skills, as well as a smaller labour force.

Notes:

1. Our Q1-25 forecast used for ECL calculation.

2. GDP, HPI and CRE start is taken from the level at Q4-24.

Capital ratios well above regulatory requirements

• CET1 capital ratio was broadly stable at 14.7%.

• UK leverage exposure increased to £247.4bn (Dec-24: £242.4bn) due to liquidity management activities.

Strong liquidity position

• Strong LCR of 153% (Dec-24: 156%), reduced following TFSME repayments.

• LCR eligible liquid assets surplus of £17.1bn to regulatory requirements.

• NSFR of 138% (Dec-24: 136%).

• LCR eligible liquidity pool of £50.3bn (Dec-24: £47.8bn), includes £30.4bn cash and central bank reserves (Dec-24: £32.2bn).

Diversified funding across well-established issuance programmes

• LDR of 110% (Dec-24: 109%), following disciplined pricing actions, with mortgage lending and customer deposits broadly stable.

• Issued £5.6bn Sterling equivalent medium-term funding in Q1-25, including Covered Bond, RMBS and Senior Unsecured issuances2.  

• Repaid £1.2bn in TFSME in Q1-25, with an outstanding balance of £9.8bn at Mar-25. Additional £5.9bn is due for repayment by Oct-25.

• We expect to issue £10-12bn of medium-term funding in 2025, including the £5.6bn equivalent issued in Q1-25.

Structural hedge evolution

• Santander UK plc's structural hedge position decreased to £106bn at Mar-25 (Dec-24: £110bn), with a duration of 2.5 years (Dec-24: 2.4 years).

• We are well positioned for Bank Rate reductions.

Notes:

1. Non-IFRS measure. See appendix for details.

2. See appendix for more details on our 2025 funding plan.

Appendix - Non-IFRS measures

Non-IFRS measures and their calculations

• Banking NIM: Annualised net interest income divided by average customer loans for the period (Q1-25: £197,648m; 2024: £201,968m).

• Cost of risk: Sum of credit impairment (charges) or write-backs for the last 12-month period as a percentage of average customer loans for the last 12 months (Q1-25: £197,648m; 2024: £201,968m).

• CIR: Total operating expenses before credit impairment (charges) or write-backs, provisions and charges as a percentage of the total of net interest income and non-interest income.

• Non-interest income: Net fee and commission income plus other operating income.

• Stage 1 ratio: Sum of Stage 1 drawn assets divided by the sum of total drawn assets.

• Stage 2 ratio: Sum of Stage 2 drawn assets divided by the sum of total drawn assets.

• Stage 3 ratio: Sum of Stage 3 drawn and undrawn assets divided by the sum of total drawn assets and Stage 3 undrawn assets.

• RoTE: Profit after tax attributable to equity holders of the parent, divided by average shareholders' equity less average AT1 securities and average goodwill and other intangible assets.

• Wholesale funding: Deposits by customers reported in Corporate Centre, debt securities in issue, subordinated debt, AT1 issuance and Central Bank facilities, TFSME and indexed-long term repos used for funding.

Movement in Banking NIM

• Loan margins: Customer rate less relevant risk-free rate.

• Structural deposit margins: Customer rate less gross structural hedge yield.

• Fixed and variable deposit margins: Customer rate less applicable swap rate or Bank Rate for fixed rate and variable rate deposits respectively.

• Funding, liquidity & other: Mainly wholesale funding coupon less Bank Rate or SONIA, and income from the eligible liquidity pool.

Appendix - Non-IFRS measures continued

RoTE Overview

Phasing adjustment relates to charges relating to the changes to our branch network and the Bank of England Levy.

Appendix - Mortgages

Internal transfers of £6.6bn in Q1-25. Internal transfers relate to current customers switching from one product to another.

Appendix - Interest rate risk

The table above shows how our net interest income would be affected by a 100 bps parallel shift (both up and down) applied instantaneously to the yield curve. Sensitivity to parallel shifts represents the amount of risk in a way that we think is both simple and scalable.

Notes:

1. Applied to mortgages three months post maturity and is calculated as a 12-month average of retention rates to Dec-24 and Sep-24 respectively.

2. Average initial advance of existing stock.

3. Based on modelling assumptions of repricing behaviour.

Appendix - Capital

Regulatory capital requirements

Distance to MDA/excess for CET1 capital, total capital and MREL ratios are measured on HoldCo requirements and exclude a 1.0% RFB systemic buffer.

Movement in CET1 capital ratio

Appendix - Funding

Of which:

2025 issuance overview

£500m AT1 issued in Feb-25 was fully subscribed by Banco Santander. 2025 expected issuances includes year to date issuances.

Appendix - Balance sheet

Balance sheet information

Appendix - Other

Retail NPS

Our customer experience research was subject to independent third party review. We measured the main banking NPS of 17,273 consumers on a six month basis using a 11-point scale (% Top 2 - % Bottom 7). The reported data is based on the six months ended 31 March 2025, and the competitor set included in the ranking analysis is Barclays, Halifax, HSBC, Lloyds Bank, Nationwide, NatWest Group (NatWest & RBS) and TSB. 

Mar-25: NPS ranked 5th for Retail, we note a margin of error which impacts those from 2nd to 6th and makes their rank statistically equivalent.

Dec-24: NPS ranked 5th for Retail, we note a margin of error which impacts those from 2nd to 6th and makes their rank statistically equivalent.

While our Retail NPS continued to improve in the quarter, our ranking at Mar-25 was unchanged from Dec-24.

Retail NPS will be our main customer service metric moving forward due to the significance of the retail business to our overall performance. Business and Commercial NPS will no longer be reported.

Transforming our branch network

In Q1-25, we announced changes to our branch network to enable the bank to better serve the changing needs of its customers.

Starting in June 2025, the changes involve the closure of 95 branches, with new Community Bankers providing local communities with ongoing face-to-face support in these locations. Our refreshed network will consist of 349 branches, including 290 full-service branches, 36 reduced hours branches, 18 counter-free branches and five Work Cafés. As part of these changes, approximately 750 of our colleagues will be placed at risk of redundancy, with support provided to those impacted, including assistance in finding redeployment roles within the bank, access to specialist outplacement support, and dedicated wellbeing support.

As a result, we have taken £63m in charges in the quarter, consisting of £21m in operating expenses and £42m in provision charges.

More information on the changes to our branch network can be found on our website.

List of abbreviations

Additional information about Santander UK and Banco Santander

Santander UK is a financial services provider in the UK that offers a wide range of personal and commercial financial products and services. The bank serves its customers via a nationwide branch network, telephone, mobile and online banking. Santander UK is subject to the full supervision of the FCA and the PRA in the UK. Santander UK plc customers' eligible deposits are protected by the FSCS in the UK.

Banco Santander (SAN SM, STD US, BNC.LN) is a leading commercial bank, founded in 1857 and headquartered in Spain and one of the largest banks in the world by market capitalisation. The group's activities are consolidated into five global businesses: Retail & Commercial Banking, Digital Consumer Bank, Corporate & Investment Banking (CIB), Wealth Management & Insurance and Payments (PagoNxt and Cards). This operating model allows the bank to better leverage its unique combination of global scale and local leadership. Banco Santander aims to be the best open financial services platform providing services to individuals, SMEs, corporates, financial institutions and governments. The bank's purpose is to help people and businesses prosper in a simple, personal and fair way.

Banco Santander has a listing of its ordinary shares on the London Stock Exchange and Santander UK plc has preference shares listed on the London Stock Exchange.

Contacts

Basis of presentation

The information in this statement is unaudited and does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006 (the Act). The statutory accounts for the year ended 31 December 2024 have been filed with the Registrar of Companies. The report of the auditor on those statutory accounts was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498(2) or (3) of the Act.

This statement provides a summary of the unaudited business and financial trends for the three months ended 31 March 2025 for Santander UK Group Holdings plc and its subsidiaries (Santander UK), including its principal subsidiary Santander UK plc. The unaudited business and financial trends in this statement only pertain to Santander UK on a statutory basis. Unless otherwise stated, references to results in previous periods and other general statements regarding past performance refer to the business results for the same period in 2024.

This statement contains non-IFRS financial measures that are reviewed by management in order to measure our overall performance. These are set out in this Appendix. A list of abbreviations is included above and a glossary of terms is available at: https://www.santander.co.uk/about-santander/investor-relations/glossary

Disclaimer

Santander UK Group Holdings plc (Santander UK) and Banco Santander caution that this announcement may contain forward-looking statements. Such forward-looking statements are found in various places throughout this announcement. Words such as "believes", "anticipates", "expects", "intends", "aims" and "plans" and other similar expressions are intended to identify forward-looking statements, but they are not the exclusive means of identifying such statements. Forward-looking statements include, without limitation, statements concerning our future business development and economic performance. These forward-looking statements are based on management's current expectations, estimates and projections, and Santander UK and Banco Santander caution that these statements are not guarantees of future performance. We also caution readers that a number of important factors could cause actual results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements. We have identified certain of these factors in the forward-looking statements on page 242 of the Santander UK Group Holdings plc 2024 Annual Report. Investors and others should carefully consider the foregoing factors and other uncertainties and events. Undue reliance should not be placed on forward-looking statements when making decisions with respect to Santander UK, Banco Santander and/or their securities. Such forward-looking statements speak only as of the date on which they are made, and we do not undertake any obligation to update or revise any of them, whether as a result of new information, future events or otherwise. Statements as to historical performance, historical share price or financial accretion are not intended to mean that future performance, future share price or future earnings for any period will necessarily match or exceed those of any prior quarter.

Santander UK is a frequent issuer in the debt capital markets and regularly meets with investors via formal roadshows and other ad hoc meetings. In line with Santander UK's usual practice, over the coming quarter it expects to meet with investors globally to discuss this Quarterly Management Statement, the results contained herein and other matters relating to Santander UK.

Nothing in this announcement constitutes or should be construed as constituting a profit forecast.

None of the websites referred to in this Quarterly Management Statement, including where a link is provided, nor any of the information contained on such websites is incorporated by reference in this Quarterly Management Statement.