Built to last
Mr L visited our Woodley branch and asked to transfer £95,000 from his bonds to his current account.
When the branch team routinely asked why he wanted to move the money, he told them it was for personal reasons.
Our Branch Manager, Andreas (pictured), thought something didn’t quite seem right. He took Mr L into a private room and asked him if everything was ok.
“Mr L’s one of our regulars and we know him well here in the branch, so I could tell that he wasn’t his normal self. I asked if anyone had told him to take out the money. After a bit of hesitation, he told me someone claiming to be the police and trading standards had told him he needed to pay them £95,000 to repair the foundations of his house.”
The rogue traders had told Mr L if he didn’t pay, they’d name and shame him in the newspaper. They’d also warned him not to tell anyone what he was doing.
“I’m so glad Andreas intervened and was persistent in trying to help me, as the alternative would have been too scary. I would have had nothing.
Nationwide is, and always has been, looking after us. I’m so grateful to Andreas and the team for being so vigilant.”
“Nationwide is, and always has been, looking after us.”
We are committed to running a financially secure Society, providing a safe home for our members’ money. As a building society, we are able to make decisions in the long-term interests of our members.
Our Financial Performance Framework helps the Society achieve the right balance between giving value to members, investing in our business and maintaining our financial strength.
Our capital – the funds that are a cushion against unexpected economic events – is above our own targets and regulatory requirements. At 4.9% our UK leverage ratio, a key measure of our financial strength, is also above our target. Following the announcement in April 2019 of our intention to redeem our Additional Tier 1 capital instrument in full, our UK leverage ratio will reduce but will remain above regulatory requirements.
We are managing our risks conservatively, although slowing house price growth resulted in a slightly higher loan to value ratio on total lending of 58% (2018: 56%).
We chose to provide extra value to members by competing in a crowded savings and mortgage market. Our competitive rates, fees and incentives meant members benefited from £705 million in member financial benefit, well above our aim of at least £400 million.
We also decided to invest an extra £1.3 billion in technology over five years so that we can meet members’ changing needs.
Underlying profit was down to £788 million, largely due to the impact of asset write-offs and our additional investment in technology, in line with expectations. Statutory profit was £833 million (2018: £977 million). As a building society, we were able to make these choices knowing it would impact profitability in the short term. We remain committed to our Financial Performance Framework, and our current performance is consistent with this framework which enables us to make conscious decisions to increase our investment at a time when members’ needs are changing rapidly and technology advancement is offering new opportunities. We have continued to manage costs and have delivered over £100 million in sustainable cost savings in each of the last two years.
Financial and operational resilience
We continue to manage our capital ratios in the best interests of our members, based on economic and market conditions. Our common equity tier 1 capital ratio reached 32.4% (2018: 30.5%) and our UK leverage ratio was above our target at 4.9% (2018: 4.9%). Both are well above regulatory requirements. Our UK leverage ratio will reduce following redemption of our Additional Tier 1 capital in June 2019, but will remain above regulatory requirements.
One of our core values is that we spend our members’ money carefully. We have been working hard to become more efficient and to achieve sustainable cost savings. Although our business has grown, we’ve kept costs broadly flat – excluding the impact of technology asset write-offs and expenditure directly related to our additional technology investment. We’ve also delivered over £100 million in sustainable savings in each of the past two years and are on track to achieve our increased target of £500 million in sustainable cost savings by 2023.
Operational resilience is also a priority for management and the Board. We are particularly focused on cyber and fraud defences, which we’ve enhanced to protect our members’ money. For example, we’ve delivered new measures to detect and prevent attacks, including improved authentication on more risky online shopping transactions.
Managing our profits in our members’ interests
As a building society, our decisions are driven by what is in the long-term interests of our members rather than the need to make ever-higher profits. We’ve made two such decisions in the last year, consciously choosing to prioritise our members’ interests over higher profits.
Firstly, we chose to keep average deposit rates at a level that was 50% higher than the market average. At the same time, we’ve offered competitive rates for new and existing mortgage members. As expected, this has continued to put pressure on our margin – the difference between the rates we pay on deposits and those we charge on mortgages – and had an impact on profits. We expect further pressure on margin in 2019/20 and will continue to manage our rates in the long-term interest of our members and the Society.
The second decision was to invest in the future of our Society. We have announced plans to invest an additional £1.3 billion in technology over five years, taking our total strategic investment to £4.1 billion. Our investment will mean we can develop a new digital platform, improve our service experience across all channels and deliver greater cost efficiencies.
The effects of these decisions can be seen in this year’s underlying profits, which were lower at £788 million (2018: £977 million). Statutory profits were £833 million (2018: £977 million). The major factor in the reduction in profits was a charge related to technology asset write-offs and our additional technology investment. Further information on our Financial Performance Framework is included in our Financial review.