Building societies set to weather credit crunch storm

Monday, 21 April 2008 5:59 AM

The method in which building societies are funded should allow them to weather the ravages of the credit crunch, according the Build Societies Association (BSA).

While conditions have become increasingly tough both for financial services providers as well as their customers during recent months, building societies remain in a strong position.

"Societies funding model means that they are uniquely positioned to weather the current financial storm and sustain mortgage lending in the future," said the BSA in a statement.

"Building societies on average derive around 70 per cent of their funding from the retail savings market. Since August 2007 societies have enjoyed record savings inflows and this has helped them to maintain their share of the mortgage market."

The latest Bank of England figures available show building societies' share of net lending was 21 per cent, compared to their share of outstanding stock of mortgages of 17 per cent in January and February.

"Building societies recognise the challenges of the current marketplace. However, their reliance on retail funding means that both large and small societies are well placed to meet these challenges and prosper in the future," continued the BSA.

Indeed the credit crunch may eventually prove to be a boon to building societies, as consumers look for a save haven for their cash.

"Immediately after the events at Northern Rock we saw in an inflow of funds as customers wanted to place their savings somewhere they trusted," explained the Chelsea Building Society (CBS) in a statement.

"Building societies have solid and robust models reinforcing customer confidence. One of the issues we as a sector have to face is the misunderstanding of who is a bank and who is a building society. This is a particular issue around the demutualised societies."

However, building societies, along with most industry stakeholders, are unsure of how long the credit crunch will last.

"It's such a difficult prediction to make and the answer could change daily depending on the latest news and speculation," explained the CBS.

"In these uncertain times, however, we do feel certain that the building society sector is in a good position to weather the storm."

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