Nationwide hit by compensation scheme
Nationwide, currently the largest building society in the UK, has said profits have been badly hit by the “unfair” amount of contribution they were required to pay out for the savings protection scheme.
Nationwide profits fell by 69 percent (pre-tax) to £212 million based on the last tax year.
The building society has called the £241 million contributions as “illogical”. This was paid to to the Financial Services Compensation Scheme (FSCS) to cover its savers for up to £50,000.
Falling interest rates have also resulted in lower returns from mortgages, which were also squeezed by bad debt.
Nationwide spoke of these bad debts causing a number of knock on effects to follow, which included a sharp rise in missed mortgage repayments, hitting £394 million.
But Nationwide has said that even after everything the recession has had to throw at it, it still remains strong.
Chief executive at Nationwide – Graham Beale, said the building society was the only major banking institution in the United Kingdom to not require additional capital or help from government bailout schemes.
“This reflects a combination of our naturally high capital and prudent lending practices which are the hallmark features of a strong building society,” he added.
Nationwide added that only 0.6% of its mortgage customers were more than 12 weeks in arrears – significantly less than the figure recorded by the Council of Mortgage Lenders industry – an average of 2.39% based on figures from the end of March.
Nationwide profits were also affected after the merging of the Portman, Cheshire and Derbyshire building societies.
But Nationwide felt hard-done-by regarding the FSCS’s calculations of contributions.
“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.” Mr Beale said.
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