Norwich & Peterborough report pre-tax profits of £1.3m

15 March 2010 | By Natalie Thomas

Its biggest losses came from its net income from traditional savings and mortgages - net interest income for 2009 was £32.2m, down from £52.2m in 2008.

Non-interest income from insurance, banking etc was £19.8m in 2009, down from £22.2m in 2008.

Included in this is £2.6m of re-structuring costs incurred in reducing staff in 2009-10 and reducing N&P’s retail network from 56 to 46 branches in March 2010.

At the end of the year funding from the wholesale market reduced to £461m, down from £1,386m in 2008.

The subdued housing market and cost of funding combined to reduce mortgage assets to £3,223m, from £3,522m in 2008 as customers redeeming away were not replaced by new lending.

N&P says it was less affected than most lenders in the level of arrears amongst its mortgage borrowers.  At the end of the year, residential mortgage borrowers in serious arrears amounted to only 0.83% of accounts; this compares with an industry average of 1.81%.              

Matthew Bullock, chief executive of N&P, says:  “Our business is largely removed from the wholesale debt markets and the riskier elements of lending.  But so profound was the crisis that we were impacted in several ways.

“First, on seeing the near collapse of the banks in October 2008 and believing further shocks would follow, we raised over £325m additional deposits in the first quarter of 2009. 

“At this time the cost of deposits was rising rapidly but we felt that it was worth reducing our interest margin in order to have the liquid funds to withstand those shocks which might have hit us.

“Secondly, the downgrading of many societies by rating agencies led local authorities, many of whom had suffered losses with the Icelandic banks, to reduce or remove their investments with building societies.  This had the effect of keeping N&P, along with some other societies, in an increasingly costly retail deposit market throughout the middle of the year, further reducing our interest margin.”

He says a third impact came from the Bank of England’s Quantitative Easing, which reduced the income related to market interest rates that it receives on many of its loans and other capital assets.

He adds: “The combined effect was to reduce N&P’s net interest margin from 1.12% to 0.70% and to cut interest income - which makes up roughly 2/3rds of our total income - by 38% from £52.2m to £32.2m.  The sale of other products, such as insurance, banking and investment advice, was also not unexpectedly lower as economic activity fell, and income from these fell by 11%.  Overall, N&P’s total income fell by 30% in 2009.                                                                   

“In response, we undertook a strategic review of cost.  Costs incurred were reduced by 12% during 2009, including a redundancy and branch closure programme charge of £2.6m, but by the end of 2009 the run rate of costs in the Group had been cut by 24%, which will result in lower costs in 2010.”