Nationwide profits fall slightly in tough retail banking market

Nationwide issued its preliminary results for the full year on Tuesday, reporting a small fall in underlying profit to £1.02bn from £1.03bn, which the board said was within its financial performance framework.

The building society reported a statutory profit of £977m for the year to 4 April, falling from £1.05bn in the 2017 financial year.

It said its profits included a £116m cost of debt buy‐back, compared to a £100m one‐off gain from the Visa Europe disposal in the prior period.

Nationwide’s UK leverage ratio improved to 4.9% from 4.4%, with its CET1 rising to a record high of 30.5% from 25.4% 12 months earlier.

The mutual’s efficiency programme kept costs flat at £1.98bn, with the board reporting total underlying provision charges of £131m, down from £276m in 2017 and reportedly driven by lower PPI charges.

During the year, Nationwide had the highest number of current account openings in the UK, opening 816,000 - up from 795,000 year-on-year.

It also reached a record market share of 7.9% for main standard and packaged accounts - up from 7.6% - and 9.4% for all current accounts, compared to a previous figure of 8.9%.

The building society reported record gross prime mortgage lending of £29.4bn, rising from £29.1bn, with mortgage net lending falling to £5.8bn from £8.8bn, which the directors said reflected high levels of competition.

Looking ahead, Nationwide said it saw a “resilient” UK economy, although growth was expected to be modest at 1% to 1.5% over next two years.

It added that a squeeze on household incomes was likely to gradually fade as inflation falls back, though it expected the housing market to remain subdued with house price growth slowing to 1% over the next year.

“Nationwide's defining difference is that we're owned by our members,” said CEO Joe Garner.

“This informs how we operate and the decisions we make.

“So we continue to focus on delivering what members tell us matters most - outstanding service and great value, backed by record capital strength.”

Garner, doing his best to talk up the virtues of Nationwide’s structure, said being member-led meant it was the UK's most trusted financial institution, also pointing out that it had led its high street peer group for customer satisfaction for the last six years.

“As a mutual, without shareholders to reward, we were able to deliver £560m in extra value to members during the year, as a result of the better rates, fees and incentives we can offer compared to the market average.

“Leading service and value added up to an all‐time membership high of 15.5 million.

“Our 'engaged' members - those who have a current account, a mortgage or a savings balance over £5,000 with us - also reached a record high of 8.1m.”

Garner said that in an industry “notorious for customer inertia”, Nationwide was making a “real difference” to the current account market.

“We had our best ever year for current accounts with more people opening an account with the society than with any other brand, a record 816,000 new accounts, and continue to perform well on switching.

“We also enjoy a greater than 10 percentage point lead on main current account satisfaction over our high street peer group.”

The directors believed Nationwide could “transform” choice for the UK's small businesses in the way it had become top choice for personal current accounts, Garner added.

“So, if we are successful in our application for funding from the money the government has asked RBS to set aside, we intend to roll out a mutual business alternative to the big five banks, nationwide.

“In the meantime, we face the future from a platform of strength.

“Strength in our service, the value we offer and our finances means we can continue to support our members, and our mission of building society, nationwide.”

Chief financial officer Mark Rennison was more focussed on the actual results, noting that Nationwide had continued to trade strongly in spite of intense competition in its core markets - in a number of cases choosing to protect value for members through more competitive pricing rather than taking the opportunity to enhance margin.

“While growing our business, we delivered on our commitment to hold costs flat, thanks to our society‐wide efficiency programme.

“This strong trading has translated into stronger than ever finances for the society.

“Our core capital ratio is at an all‐time high of 30.5%, and we improved our already conservative UK leverage ratio to 4.9%, well ahead of regulatory requirements.”

Rennison said that investing in the business and in the value it offered to members, its pre‐tax underlying profits were broadly flat at £1.02bn - within its financial performance framework.

“We expect technology innovation to accelerate, driven by digital adoption, mobile service take-up and open banking.

“We are reviewing our operations and technology to ensure Nationwide can take the opportunities ahead and meet the challenges posed by increasing dependence on technology and growing cyber threats.”

Nationwide did so having achieved a position of financial strength, good trading performance and demonstrable cost discipline, Rennison quipped.

“We will update on these plans and the investment required later in the year.”