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Nationwide hit by compensation scheme

Nationwide – the largest building society in the UK, has said profits have been hit by the “unfair” amount of contributions it made to a savings protection scheme set up by the government to cover savers against failing banks.

Nationwide profits fell by 69 percent (pre-tax) to £212 million based on the last tax year.

Nationwide said the £241 million required to cover its savers for up to £50,000 – which was paid to the Financial Services Compensation Scheme (FSCS), was “illogical”.

Falling interest rates have also resulted in lower returns from mortgages, which were also squeezed by bad debt.

According to Nationwide, these bad debts resulted in several repercussions, which included a significant increase in the number of missed mortgage repayments, hitting £394 million.

But Nationwide has said that even after everything the recession has had to throw at it, it still remains strong.

Graham Beale, the chief executive at the building society, said that Nationwide was the only major financial institution in the UK to remain indipendant from government aid or the need to raise capital.

“This reflects a combination of our naturally high capital and prudent lending practices which are the hallmark features of a strong building society,” he said.

Nationwide added that just 0.6 percent of its mortgage customers were over 3 months in arrears – significantly lower than that recorded by the Council of Mortgage Lenders industry which saw an average of 2.39% based on figures from the end of March.

Nationwide also saw its profits affected by the amalgamation of the Portman, Cheshire and Derbyshire building societies.

But Nationwide felt hard-done-by regarding the FSCS’s calculations of contributions.

“We regard the fact that the FSCS charge is not linked to the level of risk posed to the financial system by individual institutions, but instead is allocated by share of the retail savings market, as illogical and unfair, producing a disproportionate outcome for the low risk retail funded institutions, particularly building societies.” Mr Beale said.

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