MortgagesMay 23 2017

Nationwide profits down following interest rate cut

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Nationwide profits down following interest rate cut

Profits at Nationwide were down as the building society sought to protect savers from last year’s cut in interest rates.

During the year ending in April 2017, the building society posted profits of £1.054bn – down on the £1.27bn profits from the previous year.

Over the course of the year Nationwide saw record mortgage lending, with gross lending up 3 per cent to £33.7bn, and record current account openings at 795,000, up 35 per cent.

Joe Garner, chief executive of Nationwide, said the building society’s decision to protect savers from the base rate cut while passing it on to mortgage lenders had cost it £505m.

He said: “As a member-owned organisation, we don't seek to maximise our profits but to manage them in our members' interests.

“We make conscious choices about how we distribute our profitability between strategic investment, capital generation and member financial benefit.

“Our success this year allowed us to improve our capital strength and continue to invest in growing the society.

“At the same time, we were able to give back £505m to members which included maintaining selected savings rates while passing on the base rate decrease in full to mortgage borrowers.

“The combination of the low interest rate environment and our decisions to protect savings rates for longer led to an exceptional year for member value.”

Nationwide’s total underlying income was £3.28bn - down slightly on the previous year when it was £3.33bn.

Net interest income was down by £126m to £2.96bn, which Nationwide attributed to “ongoing competition” in the mortgage market.

Over the year the building society’s net interest margin went down to 1.33 per cent from 1.52 per cent.

Nationwide said: “The competitive rates available across the market have led to more members switching to competitively priced products (£17bn of members' balances switched to lower priced Nationwide mortgages) and higher redemptions.

“This reduction in back book balances, together with lower margins on new business pricing, has resulted in downward pressure on our net interest margin.”

damian.fantato@ft.com