Underlying profits at Nationwide fell 50 per cent in the 2008/2009 tax year compared to the previous year, the group's end of year results have shown.
The building society said in its results for the year ending April 4 2009, released today, that the high costs of paying levies to the Financial Services Compensation Scheme (FSCS) has had a "significant impact" on its profits.
Nationwide had to pay £241million to the FSCS in levies, covering its share of interest for the three year period of a loan from the Treasury to the FSCS, which the banks had to contribute to. It said that these levies account for more than half of the reported fall in profit.
FSCS levies are now significantly higher since several financial institutions failed last year, triggering a series of claims against the scheme.
The group also blames low interest rates, and the cost of holding additional liquidity as a result of the recession, for its fall in profits to £393million, compared to £781million in 2008.
Nationwide’s chief executive, Graham Beale, said: "We regard the fact that the FSCS charge is not linked to the level of risk posed to the financial system by individual institutions, but instead is allocated by share of the retail savings market, as illogical and unfair, producing a disproportionate outcome for the low risk retail funded institutions, particularly building societies
Despite these losses, however, Nationwide said that it "remains profitable and is here for the long-term," as a financial institution which did not need to accept support from the Government like some of its rivals, such as Lloyds and RBS.
Nationwide has also taken on three regional brands which were collapsing under the weight of the credit crisis – The Derbyshire, Cheshire, and Dunfermline building societies, which collectively added 13 per cent, or £202.4billion, to its assets.
"History will record 2008 as a year of fundamental change to banks and financial institutions across the world," Mr Beale said, adding that Nationwide has remained strong in the midst of the economic crisis, and is the only major UK banking institution not to raise capital or seek access to Government funding.
"The size of the mortgage and savings market has contracted significantly in the year as a result of the extreme economic conditions," he continued, but Nationwide managed to maintain an eight per cent share of the mortgage
market and 10% of savings
Mr Beale predicts that "Market conditions will remain challenging throughout 2009 and beyond," but remains confident that "Nationwide’s high quality balance sheet and robust capital ratios will continue to underpin our financial strength and place us in a strong position to trade through these conditions and remain a real and attractive alternative to the banks."
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