a heavy giant Santander profits increased on higher interest income but warned that rates could peak at 6% in 2024 if inflation remained high.

The Spanish The retail bank reported pre-tax profits of £1.5bn for the nine months to September 30, up 4% on the £1.4bn it made last year.

Higher net interest income this year led to an increase in group profits, jumping 11% to £3.3bn from £3bn last year.

And its net interest margin – a key indicator for lenders that shows the profitability of loans – rose to 2.04% in the first nine months of this year, compared with 1.91% in 2021.

Santander said the increase was partly the result of rising interest rates amid the Bank of England’s hike in its base rate in recent months, which made it more expensive to borrow.

What’s more, the bank’s net mortgage lending has almost doubled this year to £9.8bn from £5.2bn last year.

But the UK’s fourth-biggest lender revealed it had set aside £256m for bad loans, warning that rising mortgage rates would be difficult for households and businesses.

While we have not seen a significant deterioration in our mortgage book to date, we have increased our reserves

That could lead to more people defaulting on their loans, though there’s no sign yet of that happening, Santander said.

Its provisions for loan impairment have widened to a loss this year after it was able to issue £170m in refunds last year.

Mortgage is likely to remain “significantly higher” than a year ago in anticipation of further rises in the base rate, while the cost of food, rent and utility bills also rise, Santander warned.

“While we have not seen a significant deterioration in our mortgage book to date, we have increased our provisions,” said Mike Rainier, chief executive of Santander.

“Looking ahead, it is clear that continued inflationary pressures, higher energy prices and the impact on economic activity will mean that the service and support we provide to our customers and businesses will be critical.”

In addition, the bank’s economists predicted that the base rate could reach a peak of 6% in 2024 in the worst case scenario.

This could happen if inflation remains persistently above the Bank of England’s 2% target, meaning the cost of living crisis will worsen and consumer demand will fall, it said.

Under another pessimistic scenario, UK gross domestic product could fall by 4.8% in 2023, while house price growth could fall by 13.5%, signaling a housing market crash.

This could happen amid a range of risks to the economy, such as reduced investment during a turbulent political situation and a smaller labor force.

But under an optimistic scenario, the Bank of England’s base rate could reach a peak of 2.75% this year and fall to 2% in the coming years.

Banco Santander reported pre-tax profit of €3.8bn (£3.3bn) in the third quarter, up 2.7% from €3.7bn (£3.2bn) last year year.