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Santander UK has revealed a hike in annual profits despite putting by another £183 million to cover costs of the motor finance mis-selling scandal and warned over cost-cutting in the year ahead.

The Spanish-owned lending giant reported a 14% rise in pre-tax profits to £1.51 billion for 2025.

It added the additional provision for motor finance compensation and costs, on top of £295 million for the saga in 2024, having earlier cancelled third quarter results to assess the impact of the Financial Conduct Authority’s redress scheme.

But it cautioned “there continue to be significant uncertainties as to the nature, extent and timing of redress payments”.

“The ultimate financial impact could be materially higher or lower than the amount provided,” the bank said.

In full-year results it also set the scene for more cost-cutting in 2026, less than a week after it revealed plans to shut another 44 branches, putting nearly 300 jobs at risk.

Santander said it expects further cost efficiencies in 2026 “driven by simplification and automation of our business”.

Last week’s branch closures will leave it with 244 full branches, although it will add more through the deal to take over smaller rival TSB.

It said it expects to complete the £2.65 billion TSB deal in the first half of 2026, having previously guided for the first quarter.

Outgoing chief executive Mike Regnier said: “The most significant change in 2026 is expected to be the acquisition of TSB, for which we hope to receive regulatory approval in the first half of the year.

“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 announced last week that Mahesh Aditya, who is currently group chief risk officer at Banco Santander, will become chief executive of the UK bank on March 1, replacing Mr Regnier ahead of the TSB deal merger.

The UK bank results came after its Spanish owner Banco Santander announced late on Tuesday a 12.2 billion US dollar (£8.9 billion) deal to buy American rival Webster Bank.

Banco Santander reported a better-than-expected 7.4% rise in net income to 3.76 billion euro (£3.24 billon) for the fourth quarter, having brought the results forward by a day due to the announcement of the deal.

Full-year net income rose 12.1% to 12.57 billion euros (£10.83 billion).

The UK bank’s results show the increasing cost to the sector of the motor finance scandal, which saw millions of customers sold car loans with hidden commission.

Rival Lloyds Banking Group put by another £800 million in its third quarter for the affair, which saw its total bill rise to £1.95 billion.

Under the Financial Conduct Authority (FCA) redress proposals, about 14 million car finance deals could be eligible for compensation, with people estimated to get an average of £700 per agreement.

But the regulator’s plans have been met with significant pushback from lenders.

Mr Regnier last year called for the Government to step in, warning the compensation scheme plans could impact the car finance market and wider motor sector, leading to “significant” job cuts.

In its latest results, the bank said that under the current redress scheme plans, there was “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 expected to publish the results of its consultation into its proposed compensation scheme in March.

Santander also revealed in its results that bad debt charges nearly tripled to £193 million last year, and it said they are expected to rise further in 2026 as they trend back towards levels seen before the pandemic.

The lender said it expects a “modest” rise in UK unemployment in 2026 as firms shrink their workforces in response to tax hikes and soaring wage costs.

It is predicting economic growth to slow to 1% this year, down from an expected 1.4% in 2025, while it believes house prices will also rise at a slower pace than in 2025.