Nationwide building society’s annual profits have almost halved, partly because of the impact of hundreds of thousands of customers taking mortgage and loan payment holidays during the coronavirus pandemic.
The lender said pre-tax profits plunged by 44% from £833m to £466m in the year to 4 April. Joe Garner, the chief executive, said 280,000 customers had so far opted to take a payment holiday, which has cost the company £101m.
“In the last month of our financial year all our lives have been overshadowed by the coronavirus,” Garner said. “We are helping members in financial difficulty with payment holidays on mortgages and loans and interest-free overdraft periods.”
UK mortgage payment holiday extended by three months
Nationwide booked a total of £209m in charges as the business was also affected by investment in technology and higher PPI provisions, with customers racing to make last-minute claims before the Financial Conduct Authority’s deadline last August.
Garner said Nationwide had already moved to continue to support struggling homeowners, guaranteeing that there would be no compulsory repossessions in the current financial year for those financially affected by the pandemic. The lender has also guaranteed that it will not make any staff redundant this year.
Garner added that the hit to profits would be short-term and that it had been expected before the health emergency hit the UK.
“While the coronavirus impacted our profitability in the last few weeks of the year, there was pressure on margins even before it hit,” he said. “We made conscious moves [last year that] we knew would constrain profits. We gave more value to members and we invested in our future. Of course, the cut to the base rate [in March] put further pressure on margins.”
On the possibility of financial products being offered to customers with negative rates if the Bank of England dropped the base rate further, Garner said: “Negative rates, we have seen them in places around the world, it is fair to say they are unproven in terms of their impact. The continued supply of credit into the economy from the financial services sector is a really big factor in leading a recovery.”
He said the impact of coronavirus meant Nationwide was no longer seeking to break into the business banking sector.
“The business case is no longer commercially viable,” he said. “It is a difficult decision but the right one.”
However, he said, Nationwide’s move into offering current accounts, against the big high street banks, had proved successful. Nationwide attracted 1 million new current account holders over the past year, meaning it had reached its target of a 10% market share of UK current accounts.
“We have proved it is possible to break into the current account market,” he said.
“As the full impact of the coronavirus on our members and business becomes clearer, some of the targets we set ourselves may not be achieved in the short-term. In particular, exceptionally low interest rates mean it is unlikely we will meet our member financial benefit target next year. With bank base rate at 0.1%, paying savings rates significantly higher than this would not be financially sustainable, nor in the long-term interests of our members or the society.”
Deposits grew by £5.7bn (2019: £6.0bn), helped by strong growth in current accounts and the success of a new savings range launched in October.
Source: Read Full Article