Profit plummets at Nationwide

Nationwide, the UK's biggest building society, today blamed low interest rates and a big bill for the Government's savings protection scheme as its pre-tax profit plunged 69% to £212 million.

The society used its results for the year to April 4 to complain about the "illogical and unfair" savings protection scheme, which guarantees the safety of up to £50,000 savers' funds.

The scheme was designed to help savers regain trust in the banking system. But Nationwide complained that because it reflects share of the savings market but not risk rating, lower-risk businesses like building societies are disproportionately hit. It had to shell out a one-off charge of £241 million for the scheme in 2008.

The society had tried to capitalise on the credit crunch, taking over the Derbyshire and Cheshire societies and buying parts of the Dunfermline building society to form a business with almost 15 million members and 1,000 retail branches.

But plunging interest rates drove savers away from Nationwide, which described its results as "a resilient performance" in "unprecedented and challenging market conditions".

Although it said its mortgage lending was performing strongly, with only 0.6% of its residential mortgage accounts more than three months in arrears, compared to an industry average of 2.4%, provisions for bad debts rose sharply to £394 million.

Nationwide's chief executive, Graham Beale, said: "Profitability has been adversely affected by the low interest rate environment the current recession."