Nationwide Says Profit to ‘Moderate’ Amid Rising Competition

  • Pretax profit rose 23 percent to $1.86 billion in fiscal year
  • Customer-owned lender predicts further ‘margin pressure’

Nationwide Building Society, the U.K.’s second-largest mortgage provider, said earnings may “moderate” this year because of rising competition for home loans and investment in digital banking after it posted a 23 percent rise in profit.

Pretax profit increased to 1.28 billion pounds ($1.86 billion) in the year through April 4 from 1.04 billion pounds a year earlier, the Swindon, England-based lender said in a statement on Tuesday. While net mortgage lending climbed 28 percent to 9.1 billion pounds, competition could result in “margin pressure” in its fiscal year ahead, it said.

Britain’s biggest banks are facing a squeeze on profitability as they battle to win mortgage customers amid record low interest rates and as smaller lenders enter the market. Chancellor of the Exchequer George Osborne has introduced a surcharge on buy-to-let properties amid concerns landlords have exacerbated a shortage of supply, while the Bank of England is monitoring the sector amid concerns it could pose a risk to financial stability.

“We are seeing all the signs of more sustained and consistent competition within the mortgage market,” Finance Director Mark Rennison said on a call with reporters. “That has led to some compression in our margin in the course of the year and we see the potential for those conditions to continue.”

As a customer-owned lender without private shareholders, Nationwide can sustain a lower level of profitability, said Chief Executive Officer Joe Garner, who joined from BT Group Plc’s Openreach unit to replace Graham Beale this year.

The firm will target pretax profit of 1 billion pounds to 1.5 billion pounds, Rennison said. “We would definitely see the risks in terms of trend around profitability more concentrated on the downside than the upside,” he said.

Nationwide’s common equity Tier 1 capital ratio, a measure of financial strength, rose to 23.2 percent from 19.8 percent a year ago.

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