Nationwide building society has slashed mortgage lending by 40 per cent and increased retail deposits in a bid to beat the credit crunch.

During the last fiscal year the organisation lent £6.7 billion in secured loans – down from £11.2 billion the year before – with the company following a “conservative and sustainable” strategy.

However, Nationwide argues this drop is in response to a proactive decision to restrict lending volumes to match retail deposits.

The company also has no direct exposure to the American subprime lending sector – the source of the present liquidity crisis.

The figures seem to confirm industry fears, with the Royal Institution of Chartered Surveyors (Rics) predicting transaction levels could fall by 40 per cent this year.

The wider picture for the lender – Britain’s second biggest mortgage provider – was considerably rosier.

Reported profit before tax – which included merger costs of £59.0 million – was up five per cent, to £686.1 million, in the last year.

Increases in profit have largely been driven by the expansion of the company’s retail savings division.

Nationwide reports “exceptional performance” in this market, attracting £9.1 billion of net retail deposits – an estimated market share of 19 per cent.

“Nationwide has an inherently conservative business model with a strong capital base, high levels of retail funding and a low loan to deposit ratio,” said Nationwide’s chief executive, Graham Beale.

“We funded our net lending in the year entirely from retail receipts.

“Our consistently prudent approach to lending over a number of years during which we have focused on quality rather than volume, means our arrears remain at very low levels, and are less than a third of the industry average.”