Nationwide Building Society will stop offering car insurance to new customers starting June this year, as it reported a dip in profits it accelerated lending at low margins while opting not to pass on an interest rate cut to savers.
Pretax profit for the 12 months through April 4 fell to £1.1bn £1.3bn pounds a year ago, the Swindon, England-based lender said in a statement on Tuesday. Gross mortgage lending climbed 3% to £33.7bn.
“During the year, we identified several parts of the business that were not a good fit with our core purpose. We have begun to exit these responsibly,” said chief executive Joe Garner in a statement.
Last summer, the Bank of England cut interest rates and competition heated up in the British mortgage market. Garner has said that Nationwide’s structure as a customer-owned lender without publicly traded shares allows the company to sustain weaker margins without facing an investor backlash, Bloomberg reported.
Chief Financial Officer Mark Rennison said in the same statement the firm chose to protect savers from last year’s interest rate cut, knowing that this would reduce full-year profitability. “As well as protecting savers, our trading performance allowed us to further strengthen our core capital ratio to 25.4% and maintain our conservative 4.4% UK leverage ratio.”
Nationwide is also winding down its commercial lending business, said Garner. The company will exit the Nationwide International deposit-taking business, and will no longer offer inheritance tax planning advice.
“While we recognise these customer needs, we believe it is not in the interests of our Society to provide services which are not core to our business,” he added.
Nationwide’s loan growth was powered by London, which has outstripped most other parts of the country in recent years despite concerns that the capital’s housing market is overheating, Bloomberg reported. Since 2013, residential mortgage lending surged 41% to £58.3bn in London, comprising 34% of its home loan book.
“We have a stable and low-risk business model, which is fundamentally about looking after our members’ deposits and putting them to work funding other members’ mortgages,” said Garner.
IB with notes from Bloomberg
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