B&B moves into German market: Society receives permission for savings and home loans institution to open in January

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BRADFORD & Bingley Building Society is investing pounds 12m to establish a foothold in the German home loans market.

The society, Britain's seventh- largest, has received the regulatory go-ahead to establish a Bausparkasse, a form of housing finance institution used by about 17 million Germans. It claims it is the first foreign institution to obtain such an approval.

Bausparkassen encourage their customers to save with them for several years before advancing a loan. Savers receive a low rate of interest, about 2.5 per cent, but in return are guaranteed a loan at about 4.5 per cent.

John Smith, Bradford & Bingley's finance director, said: 'It means we are not into lending straight away. We are into saving before we take on any risk.'

B&B Bausparkasse believes that the track record it will be able to establish with its customers will enable it to avoid the problems of other overseas ventures such as Abbey National encountered in France. Mr Smith said the bad debts suffered by Bausparkassen were 'de minimis - they are included in sundry expenses'.

Bill Cooper, formerly Bradford & Bingley's head of commercial lending, will be managing director of B&B Bausparkasse, which will be based in Hamburg. Mr Cooper speaks German, having spent eight years in the country with the Army Intelligence Corps before joining the building society.

The society has formed a marketing company alongside the Bausparkasse to avoid the need to establish a sizeable branch network. Europaische Marketing und Finanzdienstleistungs (EMF) also plans to distribute the insurance and investment products of other companies.

EMF's managing director is Peter Ziegra, who has previously built up a Bausparkasse for BHW, a German bank. Mr Ziegra has already established links with brokers and sales firms with 4,500 salesmen. B&B Bausparkasse hopes to receive about 40 per cent of their business, which would give it a 1 per cent share of the market.

Mr Cooper believes B&B Bausparkasse will be attractive to its distributors because, unlike rival German institutions, it will not seek to recruit the sales firms' best staff. It will also pay commission rates 'at least as good as the competition'.

Bradford & Bingley also believes it has more marketing expertise to bring to the market than its German rivals.

Mr Smith said the society hoped the German venture would become profitable towards the end of the first year. B&B Bausparkasse and EMF will open for business in January. The firms will employ about 40 people, mostly in EMF.

If successful, the society will seek to extend the range of services it offers.

Bradford & Bingley believes Germany is an attractive market because home ownership, at 40 per cent, is the lowest in Europe. Yet Germans are keen savers and, according to a recent survey, 80 per cent would like to own their homes.

Loans from Bausparkassen typically represent only 40 per cent of the house purchase price. The remainder comes from savings and a more conventional form of mortgage loan.