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Nationwide customers to enjoy £385m account windfall after bumper year

Nationwide is set to acquire Virgin Money for £2.9bn
Nationwide is set to acquire Virgin Money for £2.9bn

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 a £100 “Fairer Share” payment to be made next month to 3.85m eligible customers with a savings account or 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 an all-time high of £2.23bn the year before, it was still elevated compared to a £1.6bn profit in 2022 – which itself was a record at the time.

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Nationwide said the decline in profit this year was mainly driven by it passing on better interest rates to savers and delivering value to its members.

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 “member financial benefit”, reflecting the extra interest it pays against the market average, worth £1.85bn to its members over the period – up from £1.05bn the year prior. Its “Fairer Share” payment last June saw £344m awarded to some 3.4m eligible members.

The building society, like its peers and the big banks, 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 net interest margin remained broadly stable at 1.56 per cent, compared to 1.57 per cent the year before.

The strong income from higher rates was largely offset by fierce competition within the mortgage market as lenders battle it out for customers. Nationwide’s gross mortgage lending dropped 22 per cent from £33.6bn to £26.3bn over the 12 months.

With a weak housing market 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 while 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 end 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 interest rate for 18 months.

Chief executive Debbie Crosbie commented: “We delivered our highest ever member value and our strong financial performance means we can extend the ways that members benefit from our success.”

“We provide our members and customers with great value products, choice in the way they bank with us, and simply brilliant service,” she continued. “We have been first for customer satisfaction among our peer group for 12 years running and have continued to grow our deposit and mortgage balances.”

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 used its deep pockets to make a £2.9bn offer to buy Virgin Money, Britain’s sixth-biggest high street bank, that was approved by Virgin Money shareholders on Wednesday.

The mid-sized banking sector is seeing increasing M&A activity as lenders like Nationwide that have recently become flush with cash pounce on smaller rivals struggling with cost pressures and a lack of scale compared to the biggest banks.

Nationwide’s deal with Virgin Money is set to mark its entry into the riskier business banking market as it looks to scale and diversify away from interest rate-sensitive savings and mortgages.

The transaction is expected to complete in the fourth quarter of this year following regulatory approval. Nationwide said on Thursday that it could realise a gain of as much as £1.5bn from the acquisition but that the final figures could vary.