Nationwide profits up but warns of competition

NATIONWIDE saw its gross mortgage lending fall by £900 million during the first half of its financial year as the UK’s largest building society came under tough competition from big banks after several years of slimming down.

Group chief Graham Beale predicts lender will not have same freedom in future

Group chief executive Graham Beale name-checked Lloyds Banking Group and Santander in particular, adding that banks in general were lending more to individuals as they moved on from building up their balance sheets.

“They’ve been deliberately out of the market for a considerable period of time now and we’ve seen them re-enter – so inevitably I think we’re going to not have quite the same freedom within the marketplace that we’ve enjoyed for quite a period now,” Beale said.

Nationwide’s gross mortgage lending fell to £13.1 billion in the six months to end-September from £14bn in the same period last year, while the mutual group saw its market share fall to 12.2 per cent from 15.4 per cent.

Despite the rising competition, ­Nationwide still posted an 83 per cent jump in underlying profit before tax to £606m from £332m last time.

The lender’s net interest margin – the difference between the interest it lends at and what it pays to savers – rose to 1.48 per cent from 1.13 per cent the year before.

However, Nationwide retail director Chris Rhodes warned in the more competitive climate it was “realistic” to see that margin staying “stable” rather than growing strongly in the foreseeable future.

“We are not going to see big increases, maybe up a little or down a little,” Rhodes said. The group said the UK housing market was beginning to slow down after a strong recovery in the second half of 2013 and early 2014, but signalled it did not expect a dramatic fall-off in mortgages.

Nationwide helped support 23,800 first-time buyers in the period. Rhodes said the main headwind facing the market was not affordability, but too few houses being built each year creating an imbalance that pushes prices up.

“The answer is not for us to lend under less stringent conditions, but to build more property. We are not building enough houses. Britain is ­currently building 100,000 a year. We need 200,000 [a year].”

The society said that the profits jump was partly fuelled by lower funding costs and a fall in bad debts. Nationwide increased its share of the personal current account market to 6.6 per cent from 6 per cent.

It is offering interest of 5 per cent a year on some accounts to entice customers and help it reach its target of a 10 per cent market share.

Rhodes admitted that “it will take us a number of years to get there” as people tended not to switch current accounts often.

The Competition & Markets Authority is investigating the current accounts market, where the big four – Barclays, HSBC, Lloyds and Royal Bank of Scotland – still have a 77 per cent share. Nationwide also said it was pressing ahead with a digital banking strategy. “Transactions carried out via our mobile app now exceed transactions via our ­internet bank,” it said.

The society said it was the first British financial services provider to deliver access to real-time current balances on Android Wear smartwatches.

Meanwhile, costs came down, with the underlying cost-income ratio falling to 50.2 per cent from 52.8 per cent. Total income rose 12.7 per cent at £1.6bn.

One analyst commented: “Nationwide is right. It probably won’t in future see the easier going it had when the clearers were focused on other things, but the performance is resilient enough to think it will not struggle too much, either.”

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