Santander - the bank formed from former building societies Abbey, Alliance & Leicester and Bradford & Bingley - saw profits plunge 40% last year after it was hit by a £538 million charge for mis-selling payment protection insurance.
That left the bank, an offshoot of Spain's biggest bank, producing a net profit of just under £1 billion.
Ignoring the PPI charge, trading profit after tax at Santander UK was down by 6% at £1.5 billion reflecting the tough trading conditions High Street banks have been facing.
Ana Botin, chief executive, said: "Santander UK has delivered a solid performance in 2011 despite challenging market conditions, maintaining the strong underlying track record of its business while strengthening the balance sheet." She said that the bank had seen "limited loan-volume growth" and "intense competition" for customers' savings. Botin added: "2012 is likely to be a tough year for the UK banking industry.
"Economic prospects have deteriorated markedly even in recent months, and increased regulatory burdens and funding costs will add to the impact on results."
That means last year's plans to list the UK business on the London Stock Exchange with a value of some £20 billion have now been definitely been put on hold at least until the end of 2013. The bank said that it had managed to beat its target for lending £4 billion to small and medium-sized businesses under Project Merlin with loans instead of £4.3 billion.
Santander has promised to grow its business lending arm and opened five business banking centres last year.
It also increased its share of the mortgage market and is now responsible for one-in-six home loans in the UK. The parent bank Santander reported an after-tax profit of 5.35 billion (£4.48 billion), down 35% after the group took extra provisions against toxic property assets in Spain.
But its key capital ratio is now up to the European regulator's standards at 9% and likely to rise further to 10% by July.
