Nationwide plans to pay around £385 million directly into its customers’ accounts as Britain’s largest building society continues to post record profits on the back of higher interest rates.
The lender, which has 16 million members, said on Thursday that its board had approved a £100 “fair share” payment to be paid out next month to 3.85 million eligible customers with a savings account or mortgage.
The move came after Nationwide reported pre-tax profits of £1.78 billion for the year ended April 4. Although that figure was 20 percent below the all-time high of £2.23 billion the previous year, it was still high compared to a profit of £1.6 billion in 2022 – itself a record at the time.
Nationwide said the drop in profits this year was mainly due to passing on cheaper interest rates to savers and creating value for its members.
While listed banks distribute surplus capital to their shareholders in the form of dividends and share buybacks, jointly managed building societies usually do this by reinvesting in the company or offering their members more favourable interest rates on savings deposits and loans.
Nationwide said it had given its members a “financial advantage” arising from the additional interest compared to the market average it paid its members over the period of £1.85 billion (£1.05 billion) – up from £1.05 billion the previous year. It paid out £344 million (£3.4 million) to eligible members as part of its “fairer share” payment last June.
The building society, like its competitors and major banks, has seen an increase in lending income thanks to higher interest rates since the Bank of England began raising borrowing costs in December 2021.
Nationwide’s net interest income – the difference between a lender’s income from loans and deposit payments – was £4.45 billion for the 12 months, £48 million less than a year earlier. The net interest margin was broadly stable at 1.56 percent, compared with 1.57 percent a year earlier.
The strong revenue from higher interest rates was largely offset by fierce competition in the mortgage market as lenders battle for customers. Nationwide’s gross mortgage lending fell 22 per cent from £33.6 billion to £26.3 billion in the 12 months.
Given the weak real estate market and an expected interest rate cut by the central bank in the summer, credit institutions are faced with falling margins and are under pressure to make better offers to their customers.
Nationwide said that while mortgage activity is likely to remain “muted in the near term as affordability pressures persist,” this will ease over time if income growth remains solid and mortgage rates remain moderate.
Meanwhile, Nationwide member deposits rose by £6.1 billion to £193.4 billion. The lender received a boost at the end of last year after attracting more than 163,000 customers through a market-leading £200 switching bonus on current accounts, which included an eight per cent savings account.
The lender announced on Thursday that it is launching a new £200 current account switching offer from March 31 for existing members who do not currently use Nationwide for their everyday banking.
Nationwide also introduced a “highly competitive” bond exclusively for members, offering an interest rate of 5.5 percent for 18 months.
Chief Executive Debbie Crosbie commented: “We have achieved our highest ever member value and our strong financial performance means we can further expand the ways in which our members benefit from our success.”
“We offer our members and customers high-quality products, choice in how they do their banking and simply excellent service,” she continued. “We have been ranked top in customer satisfaction among our peer group for 12 years in a row and have continually grown our deposit and mortgage holdings.”
The news comes as Nationwide tries to complete what is believed to be the UK’s biggest banking merger since the financial crisis.
In March, the lender surprised the City by dipping into its deep pockets to make a £2.9 billion offer to buy Virgin Money, Britain’s sixth-largest retail bank, which was accepted by Virgin Money shareholders on Wednesday.
The mid-sized banking sector is seeing increasing merger and acquisition activity as recently cash-rich lenders such as Nationwide go after smaller rivals struggling with cost pressures and a lack of scale relative to the big banks.
Nationwide’s deal with Virgin Money marks the company’s entry into the riskier commercial banking market as it seeks to expand and diversify away from interest-sensitive savings and mortgages.
Following regulatory approval, the deal is expected to close in the fourth quarter of this year. Nationwide said on Thursday it could make a profit of up to £1.5 billion from the takeover, but final figures may vary.