Santander is conducting a strategic review of its UK retail banking business, nearly two decades after acquiring a significant foothold in the UK mortgage market with its purchase of Abbey National, according to a Reuters report on Sunday.

The report claimed that the review, which is part of a routine assessment of its core markets, may lead to various outcomes, including a potential scaling back of its UK operations.

Despite the review, Santander maintains that the UK remains a core market for the bank. A spokesperson for the bank told Reuters: “The UK is a core market for Santander and this has not changed.” However, industry speculation continues over the future direction of Santander’s British business.

UK MARKET ENVIRONMENT

Santander faces stiff competition from major UK lenders such as Lloyds Banking Group and Barclays. The UK market is one of 10 key regions for the Spanish banking giant, alongside Mexico, Brazil, and Spain. According to reports, Barclays had previously approached Santander with an interest in acquiring its UK division; however, negotiations did not progress due to disagreements over valuation.

The Financial Times has suggested that Santander is exploring various strategic options, including a potential exit from the UK market in favour of regions offering higher growth potential, such as the United States. However, sources reportedly indicate that no immediate deal or announcement is expected, and the review is still in its early stages. Santander may ultimately choose to retain or even expand its UK operations.

CHALLENGES AND PRESSURES

Santander’s review comes against the backdrop of rising operational costs and regulatory pressures within the UK banking sector. In October, the bank undertook a workforce reduction, cutting 1,400 jobs. Additionally, it recently allocated £295 million to cover potential costs related to an industry-wide probe into motor finance commissions.

Industry representatives, including UK Finance, have long expressed concerns about what they claim is the high cost of doing business in Britain, citing factors such as taxation, compliance requirements, and fraud reimbursement obligations. Santander executives have also voiced their challenges in securing internal capital allocations within the group, highlighting the competitive and regulatory complexities of the UK market.

OPTIONS

While the review aims to identify the most viable strategic path forward, potential outcomes remain uncertain. Santander could opt to downsize its UK operations, explore a sale, or strengthen its market presence. Or it could decide that ‘business as usual’ is its preferred option, especially in light of possible moves to relax UK mortgage affordability rules for first-time buyers.