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Business News

Most building societies made profit

All but four of the UK's 48 building societies were profitable in the last year despite "highly competitive" conditions, a report said today

At a time of record low interest rates and subdued mortgage activity, KPMG's annual survey of the sector showed 28 societies increased bottom-line profits while the four losses compared with six in the previous year's report.

Nationwide continues to dominate, with total assets of £188.9 billion in April accounting for 61.7% of the sector, down £2.5 billion on a year earlier.

Lending constraints caused by the cost of retail funding have forced many societies to shrink the size of their mortgage books, meaning the level of sector-wide assets fell from £319.5 billion to £306.2 billion.

However, KPMG partner Simon Walker said building societies continue to have a "good" credit crisis, in contrast with the problems endured by former societies such as Halifax and Northern Rock.

He added: "The sector has had no taxpayer support and all but four made a profit last year.

"Building societies' reputation for looking after their own problems continues, with Yorkshire and Coventry each taking over multi-billion pound troubled societies."

In the case of Yorkshire, it merged with Chelsea Building Society while five months later in September 2010 Stroud & Swindon joined forces with Coventry.

Last week, members of Norwich & Peterborough voted in favour of merging the UK's ninth biggest building society with Yorkshire, the second largest player.

Mr Walker said the cost of funding remained a significant medium-term issue for societies, given expectations for a sustained period of low interest rates and strong competition for retail deposits from banks.

He added: "When interest rates started to head down after the credit crunch, the cost of savings rose as the demand for savings from banks, cut off from wholesale markets, increased and savers demonstrated that, in a low interest rate environment they were very rate sensitive.

"Most financial institutions assumed that very low interest rates would only last a couple of years and planned on the basis that rates would soon rise again and that savings margins would improve.

"It now seems likely that low interest rates may last for several more years and in any event it is not certain that the high price of savings is due to low rates, it could equally be due to the high demand from banks."

The KPMG report identified the four loss-making societies in the last year as West Bromwich, Newcastle, Norwich & Peterborough and Century.

Source: PA