The largest building Society in the UK has hugely increased provision for bad debts on consumer credit loans and mortgages.
Nationwide building society set aside only £9 million against loan defaults by customers last year, though this low figure was influenced by a £34 million write-back from its commercial property portfolio.
This year however the provision has been increased to £111 million. A dramatic rise which possibly reflects fears that many may start to default on loans if the economy starts to falter.
Nationwide insisted that consumers are still paying their loans and the provision is still very small in comparison to the building society’s balance sheet, but they are looking forward.
Robert Gardner, Nationwide’s chief economist, said: ‘We expect the economy to slow, inflation to rise, putting household income under pressure. But we are not seeing consumer behaviour changing yet.’
Nationwide has a 14.3 per cent share of the residential mortgage market, lending £26.2 billion. However, they also have a 10 per cent share of the savings market and attempts to look after savers has reduced its net interest margin – the difference between what the society pays savers and what it charges borrowers – to 1.33 per cent. Down from 1.56 per cent just a year earlier.
The drop in net interest margin has led to profits falling over the last nine months to £946 million, from £1.12 billion the time before.
Low interest rates are expected to continue squeezing margins in the near future as the economy slows over the next two years.