Nationwide plans to pay around £385m directly into customers’ accounts as Britain’s largest building society continues to enjoy bumper earnings on the back of higher interest rates.
The lender, which has more than 16m members, said on Thursday that its board had approved the “Fairer Share” payment to be made next month to certain eligible current account customers with a savings account or a mortgage.
The move came as Nationwide reported a pretax profit of £1.78bn for the year ending on 4 April. Although this figure was down 20 per cent from a record £2.23bn the year before, it was still elevated compared to a £1.6bn profit in 2022.
Whereas listed banks distribute excess capital to shareholders via dividends and buybacks, mutually-owned building societies tend to do this by reinvesting in the business or offering their members better rates on savings and loans.
Nationwide said it had delivered a combined £2.19bn of value to members during the year, including a financial benefit of £1.85bn – up from £1.05bn the year prior. Its “Fairer Share” payment last June saw £344m awarded to some 3.4m eligible members.
The lender, like its peers, has received a boost in lending income from higher interest rates since the Bank of England started hiking borrowing costs in December 2021.
Nationwide’s net interest income – the difference between what a lender earns from loans and pays out on deposits – came in at £4.45bn for the 12 months, down £48m from the previous year.
Its gross mortgage lending dropped 22 per cent from £33.6bn to £26.3bn over the 12 months.
With a weak housing market, intense competition for mortgages and the central bank tipped to start cutting rates this summer, lenders are facing squeezed margins as they come under pressure to offer customers better deals.
Nationwide said that it expected mortgage activity to likely “remain subdued in the near term as affordability pressures persist”, these would ease over time if income growth remains solid and mortgage rates moderate.
Meanwhile, Nationwide’s member deposits rose by £6.1bn to £193.4bn. The lender received a boost at the at of last year after drawing in more than 163,000 customers through a market-leading £200 current account switching bonus, which included an eight per cent savings account.
The lender announced on Thursday that it was launching a new £200 current account switch offer for existing members as at 31 March who do not currently use Nationwide for their everyday banking.
Nationwide also unveiled a “highly competitive” bond exclusively for members that is offering a 5.5 per cent annual equivalent rate for 18 months.
The news comes as Nationwide looks to finalise what stands to be the UK’s biggest banking merger since the financial crisis.
In March, the lender stunned the City when it made a £2.9bn offer to acquire Virgin Money, Britain’s sixth-biggest high street bank.
Virgin Money’s shareholders voted to approve to deal by a wide majority on Wednesday, with the transaction expected to complete in the fourth quarter of this year following regulatory approval.
It is set to mark Nationwide’s entry into the riskier business banking market as it looks to scale and diversify away from interest rate-sensitive savings and mortgages.