Nationwide, the UK’s largest building society, is to distribute £340mn to members as rising rates boosted profits by nearly 40 per cent.
The UK lender on Friday posted pre-tax profits of £2.2bn for the year to April 4, an increase of 39 per cent year on year. Revenues for the year were £4.7bn, a 20 per cent increase.
Like other lenders, Nationwide has benefited from rising interest rates. The Bank of England increased the base rate to 4.5 per cent last week, the highest level since 2008.
However, the chief executive of the mutual, which is owned by its members, warned that higher interest rates were also impacting customers, particularly when coupled with high inflation. Nationwide is forecasting arrears to tick up.
“The transition to higher interest payments is a challenge for households as they adjust their expenditure priorities,” said Debbie Crosbie. “We will continue to support those borrowers who face payment difficulties.”
As a result, the building society said it would distribute a “fairer share payment” after the results, giving eligible members £100 each with a total value of £340mn.
“We see this very much as something we’d like to repeat and maintain,” said Crosbie, adding that it was contingent on the financial health of Nationwide to ensure that it was affordable.
On Wednesday, BoE governor Andrew Bailey admitted that the UK economy was suffering from a wage-price spiral and pledged to lift interest rates as far “as necessary” to tackle persistent inflation.
Nationwide’s provisions for bad loans for the year were £126mn, compared with a release of £27mn the previous year, which the lender said stemmed from “a deterioration in the economic outlook during the year”.
Chief financial officer Chris Rhodes said that customers were changing their lifestyle as a result of pressures on their finances.
“The average spend is not increasing,” he said. “They are clearly changing what’s in their basket and what supermarkets they go to.”
The warning echoes comments on Thursday by Robin Budenberg, chair of Lloyds Banking Group, that inflation, the rising cost of living and interest rate rises would continue to dog customers throughout 2023.
Robert Gardner, Nationwide’s chief economist, added that the lender expected the housing market to remain subdued in the near term.
“It reflects the fact that household budgets are still under pressure because mortgage rates are well up from those in 2021,” he said, although rates were significantly down from the highs of late 2022 as the shock of September’s disastrous “mini” Budget had played through the market.
Nationwide expected “modestly lower house prices”, he added. The group’s base scenario assumes a house price fall of 4.5 per cent during 2023.
Source: Economy - ft.com
