The Nationwide blamed the decline on their prudent decision to hold significantly higher levels of high grade liquidity and an increase in the cost of retail funding.
The balance sheet they say is funded predominantly by retail savings, with our wholesale funding ratio of 31.3% (4 April 2008: 31.0%) being one of the lowest levels within our peer group.
The proportion of mortgage accounts more than three months in arrears of 0.40%, is significantly less than the CML industry average of 1.33% at June 2008 (the latest data available).
Meanwhile the Portman integration remains ahead of schedule with merger synergies of £90 million to be delivered by 2009/10.
Commenting on the results Nationwide's chief executive, Graham Beale, said, "Nationwide has delivered a solid performance in a difficult market with pre-tax profit increasing by 11% to £374 million. Our resilience proves that the building society business model can be particularly effective during turbulent market conditions in providing both security and good value to members.
"Our capital ratios have improved with our total Tier 1 ratio increasing to 10.0%, which is one of the strongest in the banking sector. Our asset quality remains strong reflecting our longstanding conservative approach to lending, which is to focus on quality rather than chasing market share.
"We continue to manage our business prudently in response to market conditions and to maintain our relatively low exposure to wholesale market risks. We estimate that we have taken 34% [£2.6bn] of UK net retail deposits in the period, and net lending was more than covered by retail inflows.
"We are continuing to transform the business, investing in systems which will improve customer service and help us deliver a more streamlined, cost-effective organisation. Progress on the Portman integration continues to run ahead of schedule with the migration of all savings balances onto Nationwide systems now complete and mortgage migration planned for early 2009. In addition, the mergers with The Derbyshire and The Cheshire building societies, announced in September, provide an excellent opportunity to build on our strong position in the financial services sector by adding two attractive customer franchises, creating an organisation with almost 15 million members, around 1,000 retail outlets, almost £200 billion of assets and over £120 billion of retail deposits.
"Looking forward, the Government's recently announced scheme to re-capitalise the UK banking system and to provide access to government guarantees to support wholesale funding represents an important initiative on the road to recovery for the sector, which we support.
"Wholesale market conditions remain fragile and we expect the challenging economic environment in the UK to persist well into 2009. However, notwithstanding this, Nationwide is well placed to maintain its strong financial position providing security and a safe haven to investors and depositors in uncertain times."
