Building societies are currently enjoying their strongest growth period for seven years, according to a new report by KPMG.
The figures show a 14.6% increase in building society assets for 2003/2004 taking the total sector holdings to £224.8bn. This should come as no surprise to those who know the societies well. Undoubtedly, the demutualisations of the early 1990s had an effect on the sector and a period of readjustment followed, but building societies are now punching above their collective weight.
Because of their mutual status, building societies can challenge the banks on pricing as they do not have to pay out profits to shareholders. And building societies have also been successful at keeping down their management expenses. Nearly seven out of 10 societies have reduced their management expense ratios. Among the top 19 societies, the average cost per £100 of assets managed is 85p, down from 90p last year.
In addition to this, the KPMG report points out that competitive market conditions contributed to a reduction in the average net interest margin at two thirds of societies. The average margin for the top 19 societies was 1.10%, down from 1.15% last year and lower than the margins of most other mortgage lenders. The average net interest margin for converters is 1.56%.
Commenting on the findings, Richard Gabbertas, partner at KPMG's Financial Services practice, says: “This marks a sound performance for the building society sector in very competitive mortgage and savings markets.”