Nationwide Building Society has seen its annual profits tumble by nearly a quarter after it moved to protect savers from rock-bottom interest rates.
The mutual reported a 23 per cent plunge in underlying pre-tax profits to £1.03 billion for the year to April 4 after it was hit by the Bank of England’s decision to slash rates to 0.25 per cent last summer following the Brexit vote.
Nationwide said it gave members a £505 million boost by keeping its savings deposit rates higher than rivals while passing on the base rate cut to mortgage borrowers in full.
Its move to protect savers helped see the group’s deposit balance surge by £5.8 billion, while it notched up record membership of 15 million.
On a bottom-line basis, profits fell 17.6 per cent to £1.05 billion, but the group insisted profits remained within its target range.
Chief executive Joe Garner said: “Our members have benefited by over half a billion pounds from our commitments such as paying higher rates of interest and charging lower fees than our major high street competitors.
“At the same time we delivered strong profitability, robust financial strength, and continued to invest in the business.
“We made a conscious decision to support those saving regularly, and aspiring to get on to the housing ladder and our mutual model enabled us to do this without affecting what has been a high performing year.
“It is the combination of that value and our focus on customer service, where we are rated number one for customer satisfaction amongst our high-street peer group, which helped Nationwide grow membership to an all-time high.
“While we saw record use of online services driven by our mobile banking app, we know that members value our branch network, which is why we are investing £80 million in upgrading branches this financial year. We have also opened a branch in Glastonbury, Somerset, which has been left without a bank, to test the viability of opening branches with community support. If successful, we may choose to invest in other communities.”
Nationwide said the branch is designed to be sustainable, “blending traditional and digital solutions”, including the society’s “Nationwide Now” service – a high-definition video link that enables customers to take out financial products, such as mortgages and also secure access to financial advice.
Nationwide said it was seeing “tentative” signs of a slowdown in the wider economy, with Brexit-fuelled inflation affecting household spending.
It warned over a slowdown in house price growth, with property values set to rise by 2 per cent this year and “scope for a further softening in 2018 to 2019”.
Nationwide said it expects ongoing pressures of low interest rates and competition in the mortgage market, but added that it was off-setting some of this with cost-cutting efforts.
Its net interest margin - a key measure for lenders - fell by £126 million to £3 billion, although Nationwide said it expects this to remain “broadly stable” in the current financial year. The group said gross mortgage lending rose 3 per cent to £33.7 billion, while current account business surged by 35 per cent as a record 795,000 accounts were opened.
The lender also said it would no longer provide car insurance from June this year as it continues to pare back its business model to focus on its main product of home loans.
“Car insurance does not fit with our core purpose and strategy,” Mr Garner told reporters in a phone interview.
Mr Garner said the decision was not linked to broader concerns about rising risks in the auto finance sector in Britain. Nationwide said it would close other businesses no longer deemed central to its model, including international deposit taking.