Building societies remain strong despite slump

Tuesday, 25 March 2008 12:00 AM

The UK's 59 building societies remain in remarkably strong shape, despite the ongoing liquidity concerns in the UK's banking sector.

According to the Building Societies Association (BSA) building societies are not struggling in the post-credit crunch market, despite the existence of reports revealing some had tightened lending criteria.

"I don't think they're struggling - in fact very much the opposite. Building societies aren't the only organisations out there that are cutting back on lending; competitors are as well. Just because they're restricting lending doesn't mean that they're struggling," explained Neil Johnson, PR and policy manager for the BSA.

"The building societies that took action at the end of last week, that was more an issue regarding service levels.

"As larger lenders had pulled out of the market, they found they had been inundated with applicants and had to take some action to maintain the service levels that their customers expect."

Last week Bath building society removed all deals from the market, except those at its standard variable rate, while Cheltenham & Gloucester announced borrowers relying on bonuses of more than £100,000 must now be referred to underwriters.

However, concern for the sector appears misplaced.

Building societies are legally permitted to draw 50 per cent of their funds from commercial markets, with the remainder secured through customer deposits.

As such these organisations have been less dramatically affected by fluctuations in the availability of liquidity in the market.

"Building societies are largely funded by retail deposits rather than wholesale markets," continued Mr Johnson.

"So the problems in the wholesale markets haven't affected them in the same way that they've affected banks. And as people start to save more, building societies are actually in a very good position."

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