Nationwide Building Society hit by bad debts

| May 27, 2009

The UK’s largest building society, Nationwide, has reported a 69% fall in pre-tax profits to £212 million for the 12 months to April 4, compared with £686 million the same period a year ago.

Meanwhile, the building society slammed the Treasury’s Financial Services Compensation Scheme (FSCS) (which guarantees savings up to the value of £50,000), to which it had to pay £241 million.

Nationwide slammed the scheme criticising the way its FSCS contributions were calculated.

Graham Beale, Nationwide‘s chief executive, said: “We regard the fact that the FSCS charge is not linked to the level of risk posed to the financial system by individual institutions, but instead is allocated by share of the retail savings market, as illogical and unfair, producing a disproportionate outcome for the low risk retail funded institutions, particularly building societies.”

The building society added that record low interest rates had resulted in poorer returns from mortgage customers but did emphasise that only 0.6% of its residential mortgage customers were more than three months in arrears, compared with the industry average of 2.39% as at the end of March (according to the latest figures from the Council of Mortgage Lenders).

However, the building society highlighted that it was the only major UK financial institution not to have sought financial assistance from the Government or raise capital.

In addition, the Nationwide said its results “demonstrate a resilient performance in an exceptionally difficult market place.”

The group cautioned that “market conditions will remain challenging throughout 2009 and beyond.”

The UK’s building societies have been relatively unscathed by the banking crisis but recently, several small societies have been rescued by their larger rivals.

Cheshire and Derbyshire building societies have been swallowed up by Nationwide, while the latter also rescued Dunfermline building society at the end of March.

Meanwhile Britannia Building Society is in the process of merging with Co-operative Financial Services, as are Scarborough and Skipton.

Building societies have benefited since the collapse of Icelandic banks, Icesave and Kaupthing Edge, and the near collapse of Northern Rock and Bradford & Bingley as savers seek a safe haven.

Tags: , Financial Services Compensation Scheme,

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