Underlying profit before tax was £393 million, a reduction of 50% on 2008 (£781 million), which reflects the cost of carrying additional liquidity and margin compression in a low interest rate environment, together with an increase in impairment provisions in the current recessionary conditions.
After taking the Financial Services Compensation Scheme (FSCS) levy into account profit before tax for the year was down 69% at £212 million against £686 million in 2008.
Nationwide’s chief executive, Graham Beale, said, “History will record 2008 as a year of fundamental change to banks and financial institutions across the world. Nationwide has remained strong in the midst of all this turbulence and has been the only major UK banking institution not to raise capital or seek access to Government sponsored capital enhancing schemes. This reflects a combination of our naturally high capital and prudent lending practices which are the hallmark features of a strong building society.
“Profitability has been adversely affected by the low interest rate environment and increased provisions as a result of the current recession. Our reported profit is 53% lower than it would otherwise have been because there is an exceptional charge of £241 million relating to the levies payable to the FSCS.
“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. This view is shared by 173 cross party MPs. We have also lobbied for an increase in the FSCS limit from £50,000 to at least £100,000 which would reassure savers with independent institutions that they have similar protection as those with Government owned, nationalised and part-nationalised banks.
“During the year we played our part in promoting financial stability by merging with the Derbyshire and Cheshire building societies in December 2008 and by acquiring selected assets and liabilities of Dunfermline Building Society in March 2009. In addition, the Group also expanded its retail savings franchise by opening a branch in Ireland in March 2009.
“The size of the mortgage and savings market has contracted significantly in the year as a result of the extreme economic conditions. In addition, aggressive deposit taking by state owned institutions such as NS&I and Northern Rock effectively took in excess of 70% of the savings market in the second half of 2008. Against this background we maintained our competitive position with healthy market shares of over 8% for mortgages and 10% for savings deposit growth.
“Market conditions will remain challenging throughout 2009 and beyond. In particular, the low interest rate environment will continue to depress margin and higher levels of unemployment and business failures will inevitably lead to increased loan loss provisions. However, we remain confident that Nationwide’s high quality balance sheet and robust capital ratios will continue to underpin our financial strength and place us in a strong position to trade through these conditions and remain a real and attractive alternative to the banks.”
