Safety net fees make £300,000 dent in profit, says SBS chief

THE chief executive of Scotland's largest indigenous building society yesterday hit out at levies imposed by a consumer safety net, saying they had dented profits to the tune of £300,000 since the Icelandic banking crisis.

Payments to the Financial Services Compensation Scheme (FSCS) – designed to protect consumers from lenders collapsing – totalled 338,000 in the past two years, said Gerry Kay, chief executive of the Scottish Building Society (SBS).

The Edinburgh-headquartered mutual – which became the country's biggest building society after the UK government and Nationwide rescued the Dunfermline Building Society in March last year – was being penalised for its success in attracting retail deposits.

That was despite the amount it paid into the scheme falling to 95,000 in its most recent financial year from 243,000 the previous year, due to the Bank of England's base rate being cut to an historic low of 0.5 per cent.

FSCS levies – imposed after the bailout of Bradford & Bingley and the collapse of the Icelandic banking sector – are based on a complex calculation involving the level of retail deposits and interest rates.

Kay said: "What we're paying is still disproportionate compared to what other banks and building societies pay. The more successful we are in attracting savers, the more we must pay."

SBS yesterday revealed that its retail savings balances rose by 30 million, or 13 per cent, to 259m in the year to 31 January.

However, pre-tax profits slipped to 1m from 1.1m a year earlier.

SBS, which was founded in 1848, also saw a jump in loans. Gross lending rose by 20m, or 51 per cent, to 59m. Net lending, at 28m, was three times that of the previous year – a level fully funded by the increase in retail savings.

Mortgage balances stood at 241m at the end of January.

SBS's capital ratio stood at 8.3 per cent – one of the highest in the sector – while mortgage arrears were less than one-third of the levels for other lenders.

SBS generally distributes its products and services in solicitors', chartered accountants' and surveyors' offices, and has 80 "agencies" throughout Scotland, from Stornoway to the Borders.