Building Societies Finding It Hard To Be Able To Offer Loans
A new report has suggested that building societies in the UK are finding it increasingly difficult to be able to offer competitive loans to their customers in the wake of the recent banking crisis and that many may find it hard to survive.
The news comes from the rating agency, Moody’s, who claim that a lack of loan funding from the wholesale money markets is leading to the decline of this traditional source of home owner loans.
With the Government effectively nationalising a number of the large high street banks in the UK through huge Treasury loans to keep them afloat and provide funding, this has created an unlevel playing field for many building societies.
A large number of building societies rely on their customers’ savings in order to fund loans to other customers, but with historically low interest rates, coupled with the implied security of a bank owned largely by the Government, many savers are withdrawing their savings from building societies to place them with the nationalised banks.
This having the effect of leaving building societies with insufficient funds to be able to offer home owner loans and mortgages to customers, whilst nationalised banks are able to offer loans with the money from Government loans.
This has led to concerns that many societies will not survive in the current economic climate and be taken over, or merge with, larger societies or banks.
Fiona Cornes of the Building Societies Association (BSA) said “We will continue to lobby to ensure that it is a fair market, we are competing with some of the part nationalised banks for funding and they have had access to tax payers’ money and other Government money that building societies have not had access to. It should be a level playing field. We do not rule out further consolidation within the sector and we are expecting some building societies to post good results this year.”
