Mutual appreciation as two societies' profits soar

Lending Strategy March 2010

The annual results season for building societies has started well, with two of the biggest announcing profit rises.

Leeds Building Society, the country’s sixth largest mutual, reported a pre-tax profit of £31.7m for 2009 - 56% up on the £20.3m figure for 2008.

Its operating profit before impairment losses and provisions rose to a record £80.1m compared with £68.6m in 2008.

But new mortgage lending was down at £922m in 2009 compared with £1.28bn in 2008.

Leeds says this reflects the much smaller UK market, in which net mortgage lending declined to less than £12bn last year - around a quarter of the figure seen in 2008.

Capital and reserves rose to a record level of £543m compared with £526m in 2008.

Savings balances also rose by £225m to a record £6.8bn, with 71,000 members added. This takes the society’s total membership to more than 680,000.

Ian Ward, chief executive of Leeds, says: “Throughout last year we offered a wide range of mortgage products enabling many customers to remortgage or buy their first home. All our residential mortgage lending is funded by retail savings.

“Our lending policies continue to be prudent and this can be seen by our average LTV on new lending in 2009 of just 50% - the same as on our total residential mortgages.”

Meanwhile, Skipton Building Society announced pre-tax profits of £63.5m compared with the previous year’s £22.5m.

The society has also revealed it is to merge with Chesham Building Society. The enlarged society will have more than £15bn of assets and a 92-strong branch network.

Subject to confirmation by the Financial Services Authority and approval by Chesham members the merger is expected to become effective in June.

Skipton has committed to retaining Chesham’s three branches for 12 months from the time of merger and there will be no compulsory redundancies among branch staff.

David Cutter, chief executive of Skipton, says: “We have always made it clear that we would consider merger activity where it is in the best interests of our members. We look forward to welcoming Chesham’s members on board and believe this union will bring positive product and service benefits.”

Skipton’s results show its group mortgage assets rose by £1.3bn to £10.7bn in 2009, largely as a result of its merger with Scarborough Building Society. Group pre-tax profits from continuing operations were up some £100,000 compared with 2008, at £18m.

Retail balances increased by £2.3bn to £10.5bn and savings membership was up by 145,000 to 700,000, with 79% of funding coming from retail balances compared with 69% in 2008.

A spokeswoman for the Building Societies Association says: “The society results announced so far are encouraging but the trading environment is still challenging.”