National customers will receive a £385 million windfall after a profitable year

Nationwide Building Society, Britain's largest, has announced plans to transfer around £385 million directly into customers' accounts after a successful financial year driven by higher interest rates.

On Thursday, Nationwide confirmed its board had approved a £100 “Fairer Share” payment to be made next month to 3.85 million eligible customers with a savings account or mortgage.

The announcement comes as Nationwide reported pre-tax profits of £1.78 billion for the year ending April 4. While this represents a 20% decline from last year's record high of £2.23 billion, it remains significantly higher than the £1.6 billion profit recorded in 2022.

Nationwide attributed the decline in profits to its decision to offer savers better interest rates, giving its members more value. Unlike publicly traded banks that return excess capital to shareholders through dividends and buybacks, mutually owned mutual funds like Nationwide reinvest in their businesses or offer members higher interest rates on savings and loans.

Over the past year, Nationwide has delivered a “financial benefit to members” worth £1.85 billion, reflecting the additional interest paid compared to market averages. This is an increase from £1.05 billion last year. Last June, £344 million was distributed to around 3.4 million eligible members through the “Fairer Share” payment.

Higher interest rates since the Bank of England began raising borrowing costs in December 2021 have boosted lending income for Nationwide and other financial institutions. Nationwide's net interest income for the last twelve months was £4.45 billion, slightly lower than the previous year. The net interest margin remained stable at 1.56%, compared to 1.57% last year.

However, intense competition in the mortgage market has offset the benefits of higher interest rates, with Nationwide's gross mortgage lending falling 22% over the year from £33.6 billion to £26.3 billion.

With the housing market sluggish and the central bank expected to cut interest rates this summer, lenders are under pressure to offer more attractive deals, putting pressure on their margins.

Nationwide noted that while mortgage activity is likely to remain subdued in the short term due to affordability pressures, it should decline over time if income growth remains stable and mortgage rates remain subdued.

The building society also saw member deposits rise by £6.1 billion to £193.4 billion, supported by a market-leading £200 switching bonus at the end of last year, which attracted more than 163,000 new customers.

Nationwide is launching a new £200 current account switch offer from March 31 for existing members who do not currently use the association for their day-to-day banking. In addition, it unveiled a competitive bond exclusively for members, with an interest rate of 5.5% for 18 months.

Chief Executive Debbie Crosbie commented: “We have delivered our highest ever member value and our strong financial performance means we can expand the ways in which members can benefit from our success. We offer our members and customers high-quality products, choice in the way they bank with us and brilliant service.”

Nationwide is also completing a significant £2.9 billion acquisition of Virgin Money, which was approved by Virgin Money shareholders on Wednesday. The move marks Nationwide's entry into the business banking market, allowing the company to diversify beyond interest rate-sensitive savings and mortgages. The transaction is expected to close in the fourth quarter of this year, following regulatory approval, with potential profits of up to £1.5 billion from the acquisition.

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