Nationwide Suffers 33% Decline in Profits in Annual Report

Swindon-based Nationwide Building Society, the UK’s largest building society, has reported a decline in profits of 33% for the first half of its financial year to 30th September 2019. The building society, which boasts around 16 million members, saw the mutual’s statutory profits fall to £309 million, down from £516m in the previous six-month period.

"Nationwide Building Society, 62-64 Broad" (CC BY 2.0) by hazelnicholson

Although those figures might sound alarming at face value, it’s important to note that Nationwide operates differently to most other high-street banks, with no external pressure to yield substantial returns to shareholders. Consequently, Nationwide has decided to play the long game by investing some of its profits in future-proof technology and other areas instead of taking “short-term profit”.

The mutual is in the process of investing in upgrades to many of its branches across the country, as well as ambitious new “digital innovation hubs”, one of which will be located in Swindon, with its sister site based in the capital. The new hubs will house a Digital and Technology Innovation Centre, providing a forward-thinking platform for employees working across Nationwide’s FinTech specialisms such as data, architecture and engineering.

Investment in future-proof technology to help realise economies of scale is a proven long-term strategy that more businesses are looking to use in a host of sectors aside from banking and finance. In the iGaming sector, Swedish software development studio, NetEnt, has recently published post-tax profits of 76m SEK (£6.1m) in its Q3 2019 report due largely to its long-term strategy to invest in burgeoning technologies. Its acquisition of Red Tiger Gaming has helped cement NetEnt in the iGaming software sphere, while its continued investment in live streaming technology for online casino games has captured the imagination of one of the UK’s longest established iGaming brands, with NetEnt partnered up with William Hill in a deal to deliver their live dealer tables.

Image: Brian Robert Marshall (CC BY-SA 2.0)

Nationwide’s expansion plans should also help the Society attract tech talent for the future, in much the same way as NetEnt. The acquisition of Ramsbury House in the heart of Swindon’s town centre looks set to help Nationwide deepen its roots in Wiltshire. There were additional mitigating circumstances for the decline in profits for Nationwide, which were outlined by the mutual’s chief executive, Joe Garner. Mr Garner cited the renewed competition in the UK mortgage market, along with bargain basement interest rates, as one of the main reasons why margins have been squeezed for Nationwide and other leading lenders. He said that although the “pace of growth has moderated” for the Society, it was still working hard to expand its mortgage, savings and current accounts business.

The Society’s figures for the last six months to 30th September 2019 also take into account the last-minute dash among consumers to file PPI claims ahead of the 29th August deadline. The figures suggest that PPI payouts hit profits by a further £36m in this period, with Nationwide’s total PPI bill escalating to £473m as a result. The Society has had to deal with many fake PPI claims, adding there were several “inquiries received where no PPI had been held”, with current and former customers merely trying their luck in the deadline mayhem.