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Societies&#39 margins are squeezed

Despite building societies becoming more cost-effective, their margins are narrowing as competitive pressures increase.

KPMG&#39s latest review of all 65 societies&#39 latest financial statements reveals that around two-thirds reported a reduction in net interest margins as a result of passing the benefits of mutuality back to members and market pressures.

Its building societies data-base 2002 shows that the average net interest margin for the top 20 building society mutuals has fallen to 1.22 per cent from 1.26 per cent in 2001.

The sector&#39s asset growth was down on the previous year from 11.3 per cent to 8.2 per cent although assets increased from £159.1bn to £172.2bn.

Growth was highest among big building societies which posted an average of around 10 per cent growth while smaller societies grew by about 8 per cent.

Nationwide still dominates the sector, accounting for 42.5 per cent or £73.2bn of the industry&#39s total assets, alth-ough this figure has dropped from 44 per cent last year.

The sector&#39s share of gross mortgage lending fell from 21 per cent to 16 per cent but KPMG says societies have been more successful in the savings market, where their share has risen slightly from 16 per cent to 17 per cent.

Partner Richard Gabbertas says: “Societies are continuing to increase their cost-efficiency to be able to compete effectively in a mortgage market, where it remains difficult to write profitable business. Bad debt provision levels have fallen only slightly against a background of falling arrears and so societies appear prepared for any economic downturn.”

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