Nationwide sounds alarm on bad loans

Nationwide has set aside more than £100 million to cover bad loans amid fears that cash-strapped households will struggle to manage their debts.

Britain’s second-largest mortgage lender, which is owned by its customer members, saw profits rise to £969 million in the six months to September, from £853 million a year ago.

But this number was squeezed by Nationwide’s decision to set aside £108m as it braces for customers hit by a cost-of-living crisis to fall into arrears.

The construction bank said it does not see this happening yet, but that ‘higher interest rates, rising inflation and the uncertain economic outlook remain important risks’.

Chief executive Debbie Crosbie said Nationwide’s strong performance, boosted by the revenue it can generate from charging higher interest rates now that the Bank of England has raised its base rate, would allow the lender to invest in products for its members.

She said: “We have increased the incentive to switch to the current account and expanded our support for members facing rising living costs, including hands-on support at our branches, a dedicated telephone hotline and an online support center.”

Nationwide also passed on a higher share of rate hikes to its savers than the market average, it claimed. But Crosbie noted that Nationwide “wasn’t immune to the economic challenges and it’s important to stay financially strong.”

The Office for Budget Responsibility, the government’s budget watchdog, warned this week that the economy was in a recession that started in the third quarter. It will take just over a year and wipe out 2 percent of the economy, lowering living standards by 7 percent in two years. But Robert Gardner, Nationwide’s chief economist, said he hoped low unemployment and savings built up during the pandemic would soften the blow.

Buy-to-let loans have already started to fall, Nationwide noted. Crosbie said this could pose further challenges to tenants as landlords sell their properties and tenants are left chasing an ever-shrinking housing pool.

All the other major UK banks are strengthening their reserves in preparation for a slump, although none are starting to see an increase in bad loans.

However, Nationwide had to provide £400 million in loans to its pension fund, which had run out of money during the chaos following Kwasi Kwarteng’s mini-budget.

Muir Mathieson, the lender’s treasurer, said the scheme was “highly solvent and very well funded.”