Despite a difficult market, Nationwide's half yearly figures have shown that the lender's underlying profit before tax sat at £394.4 million, an increase from an underlying £306.0 million in September 2006.
The merger with Portman increased Nationwide's total assets by 21 per cent to £166.0 billion, with the total number of product sales also increasing by 19 per cent.
In addition, the reported profit before tax, which includes merger and disposal costs of £47.0 million, was up 1 per cent to £338.3 million.
Lending
Nationwide revealed a conservative and sustainable approach to lending and focus on quality delivered prime net lending of £3.3 billion (September 2006: £5.6 billion) and total group net lending of £3.6 billion (September 2006: £5.9 billion), while ensuring asset quality remains much stronger than industry averages.
Indeed, the proportion of mortgage accounts three months or more in arrears is 0.31 per cent for prime mortgage business and 0.35 per cent across the group - less than a third of the industry average of 1.06 per cent.
The prudent approach applied to prime residential lending was also adopted in the non-retail market. Commercial net lending totalled £0.9 billion (September 2006: £1.8 billion).
Specialist net lending totalled £0.3 billion (September 2006: £0.3 billion), with very strong asset quality maintained – the proportion of specialist lending accounts more than three months in arrears is 0.98 per cent, which is below the industry average for overall mortgage lending of 1.06 per cent.
Strategic development
Effective from February 2008, the firm announced it has entered into a Strategic Distribution Agreement with Legal & General for the supply of life insurance, investment and pension products. As part of this agreement, Legal & General will purchase two subsidiaries, Nationwide Life and Nationwide Unit Trust Managers.
Graham Beale, chief executive of Nationwide said: “This has been an exceptional and challenging six months, a period in which we have merged with Portman Building Society and the industry has seen unprecedented market conditions arising from the 'credit crunch'.
"Despite this, we have achieved record results increasing our underlying profits by 29 per cent, retail deposits have increased by 96 per cent and we have maintained our already strong asset quality. At the same time we have returned over £300 million to our members through better interest rates and lower fees and charges than the banks.
“Our merger with Portman Building Society, which took effect on 28 August, was the largest ever building society merger. The merger makes us the UK’s second largest mortgage provider and reinforces Nationwide’s position as the UK’s second largest savings provider, giving us the scale and distribution to offer a real alternative to the banks. We now have assets exceeding £166 billion and over 13 million members making us the world’s largest building society.
“We have one of the strongest and safest balance sheets of any financial organisation in the UK – our assets are of the highest quality and over 70% of our funding comes from member based retail deposits.
“Our long-standing prudent approach to lending means we have a mortgage book of outstanding quality; our arrears remain at very low levels and are less than a third of the industry average. We deliberately focus on quality of lending rather than pursuing market share and we intend to maintain this prudent approach. The quality of our commercial lending and treasury portfolios is also excellent. We have no direct exposure to US sub prime lending resulting in an overall balance sheet of the highest quality.
“As the financial markets have experienced unprecedented turmoil in recent months, savers have been looking for a safe home for their money. Nationwide is regarded by many as offering both a safe haven and good value and we have seen a significant inflow of savings. Inflows in the last six months amounted to £4.1 billion, an increase of 96% on the same period last year. Trends for October and early November follow a similar pattern. The high level of savings inflows enabled us to fund all residential mortgage lending in the half year from retail receipts.
“The strength of our mutual franchise combined with our prudent approach to lending gives Nationwide a strong and sustainable business model that enables us to provide confidence to consumers and corporate investors alike during times of market turbulence.”
Operating Highlights
Retail financial services activity
· Prime mortgage gross lending of £11.9 billion (30 September 2006: £13.5 billion), and net lending of £3.3 billion (30 September 2006: £5.6 billion) reflect our cautious approach to lending in a fiercely competitive market.
· Proportion of prime mortgage accounts three months or more in arrears at 0.31% is significantly below the industry average of 1.06%.
· Strong retail savings deposits growth of £5.8 billion, represents a 15% share of the overall increase in UK retail savings.
· Total current accounts up 6% to 4,316,000 (4 April 2007: 4,083,000). New accounts opened of 303,000 (30 September 2006: 322,000) represents an estimated market share of 8%.
· Total credit card accounts up 3% to 1,160,000 (4 April 2007: 1,122,000).
· Gross unsecured lending reduced to £0.3 billion (30 September 2006: £0.6 billion). Asset quality remains strong with the proportion of personal loan balances 30+ days in arrears reducing to 5.92%, compared to the industry average of 10.00%.
· Strong insurance, investment and protection sales of 486,000 (September 2006: 375,700), up 29% on the comparable period last year, with general insurance sales up 39% to 358,000 (September 2006: 258,000) reflecting the success of both our new products and innovative marketing campaigns.
Non-Retail financial services activity
· We adopted the same cautious approach with our non-retail lending as we did retail lending.
· Against a background of uncertain market conditions we have focused on quality of lending to our existing commercial customers. Commercial gross lending was £2.8 billion (30 September 2006: £3.6 billion) with net lending of £0.9 billion (30 September 2006: £1.8 billion).
· Specialist Lending Division comprises UCB Home Loans and The Mortgage Works (TMW, formerly the specialist lender of Portman Building Society). The Division delivered gross lending of £1.2 billion (30 September 2006: £1.0 billion) and net lending of £0.3 billion (30 September 2006: £0.3 billion).
· Proportion of specialist lending accounts three months or more in arrears at 0.98% is below the industry average for overall mortgage lending of 1.06%.
Balance Sheet
· Balance sheet funded predominantly by retail savings, with our wholesale funding ratio of 29.0% (4 April 2007: 28.4%) being one of the lowest levels in the industry.
· Proportion of wholesale funding for which original maturity date is greater than one year has remained stable at 50.4% (4 April 2007: 48.5%).
· Prudential liquidity ratio increased to 12.1% (4 April 2007: 10.4%).
· Strong capital position, with a solvency ratio of 10.5%.
Social Responsibility
· At Nationwide’s 2007 AGM in July, members voted in favour of achieving the PerCent Standard – a commitment to invest at least 1% of pre-tax profit in community, charitable and environmental activities from 2008.
· In support of its commitment to financial education, Nationwide has sponsored the Teenagers Guide to Money, a paperback published earlier this month.
· Celebrating its tenth anniversary this year, the Nationwide Foundation (a registered charity set up and funded by Nationwide) has approved grants totalling over £22 million to over 2,300 charities since 1997.
· The Society has entered into an agreement with the Heritage Lottery Fund which will widen the scope of the Nationwide Awards for Voluntary Endeavour, the Society’s long-standing award scheme for people involved in volunteering which this year has recognised over 1,400 volunteers contributing to communities across the UK.
· Nationwide has extended its community & environmental affairs programme to include some former Portman Building Society activities, such as supporting the Bournemouth Symphony Orchestra, a national youth cricket scheme, and the Wessex Autistic Society’s 10k run.
