Nationwide Profit Slips as It Shields Savers From Rate Cut

  • London powers mortgage-loan boom for customer-owned lender
  • U.K.’s second-largest mortgage provider hurt by low BoE rate

Nationwide Building Society, the U.K.’s second-largest home loan provider, reported a fall in annual profit as it accelerated lending at low margins while opting not to pass on an interest rate cut to savers.

Pretax profit for the 12 months through April 4 fell to 1.1 billion pounds ($1.4 billion) from 1.3 billion pounds a year ago, the Swindon, England-based lender said in a statement on Tuesday. Gross mortgage lending climbed 3 percent to 33.7 billion pounds.

Nationwide predicted lower profitability after the Bank of England cut interest rates last year and competition heated up in the British mortgage market. Chief Executive Officer Joe Garner has said that Nationwide’s structure as a customer-owned lender without publicly traded shares allows the company to sustain weaker margins without facing an investor backlash.

“We chose to protect savers from the full effects of last summer’s interest rate cut, knowing that this would reduce our full-year profitability,” Chief Financial Officer Mark Rennison said in the statement. Rennison said the lender’s capital level is unaffected as long as underlying pretax profit stays above 900 million pounds.

Nationwide’s loan growth was powered by London, which has outstripped most other parts of the country in recent years despite concerns that the capital’s housing market is overheating. Since 2013, residential mortgage lending surged 41 percent to 58.3 billion pounds in London, comprising 34 percent of its home loan book.

The surge however comes amid tough competition and as older loans are repaid or moved onto lower rates. That’s hurt the net interest margin, a measure of profitability, which narrowed to 1.33 percent from 1.52 percent.

Nationwide is also also paying more in interest to savers than other banks, with average deposit rates a third higher than the market average. However, that helped deposit balances increase by 5.8 billion pounds as customers opened 795,000 new checking accounts, according to the statement.

Although Nationwide doesn’t have shareholders to please, it must satisfy bondholders of its resilience. Its common equity Tier 1 capital ratio, a key measure financial strength, increased to 25.4 percent from 23.2 percent a year earlier. The U.K. leverage ratio remained static at 4.4 percent.

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