Building societies in good shape despite liquidity concerns

According to the Building Societies Association (BSA), the UK’s 59 building societies are in good shape in spite of the ongoing liquidity concerns in the UK’s banking sector.

The BSA announced that building societies are not struggling in the aftermath of the credit squeeze despite reports revealing some had tightened their lending criteria.

Neil Johnson of the BSA said I don’t think they’re struggling, in fact very much the opposite. Building societies aren’t the only organisations out there that are cutting back on lending, competitors are as well. Just because they’re restricting lending doesn’t mean that they’re struggling.

Mr Johnson added since larger lenders had withdrew from the market, building societies have found they had been inundated with applicants and had to take some action to maintain the service levels that their customers expect.

Last week, Bath Building Society withdrew all deals from the market, apart from those at its standard variable rate, while Cheltenham & Gloucester announced borrowers relying on bonuses of more than £100,000 must now be referred to underwriters.

However, concern for the sector appears misplaced. Building societies are legally permitted to draw 50% of their funds from commercial markets, with the remainder secured through customer deposits.

As a result, these organisations have been affected less by fluctuations in the availability of liquidity in the market. Building societies are largely funded by retail deposits rather than wholesale markets, added Mr Johnson.

The problems in the wholesale markets haven’t affected them in the same way that they have affected banks. As people start to save more, building societies are actually in a very good position, concluded Mr Jonson.

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