Nationwide Building Society has reported a sharp decline in annual profits, blaming bad debts and low interest rates.

The UK’s biggest building society today reported pre-tax profits for the year to April 4th were down 69 per cent at £212 million.

Nationwide announced it had paid £241 million into the Financial Services Compensation Scheme (FSCS), which guarantees savings up to the value of £50,000, during the last 12 months.

Low interest rates were also blamed with worse returns from mortgages and the building society said it had felt the effect of bad debts.

Today’s announcement confirmed provisions for bad debts had risen to £394 million during the last year.

In announcing the results Nationwide criticised the FSCS, describing it as “illogical and unfair”

Graham Beale, Nationwide chief executive, commented: “History will record 2008 as a year of fundamental change to banks and financial institutions across the world.

“Nationwide has remained strong in the midst of all this turbulence and has been the only major UK banking institution not to raise capital or seek access to government sponsored capital enhancing schemes.”

“We regard the fact that the FSCS charge is not linked to the level of risk posed to the financial system by individual institutions, but instead is allocated by share of the retail savings market, as illogical and unfair, producing a disproportionate outcome for the low risk retail funded institutions, particularly building societies.”

He also claimed Nationwide had worked to promote stability by merging with the Derbyshire and Cheshire building societies in December 2008 and by acquiring some of the assets and liabilities of Dunfermline Building Society in March 2009.

Mr Beale criticised government-backed savings providers National Savings & Investments (NS&I) and Northern Rock for “aggressive deposit taking” leading them to have in excess of 70 per cent of the savings market in the second half of 2008, while the mortgage and savings markets contracted.

Nationwide also reported it passed the Financial Services Authority’s (FSA) stress tests and its capital position was “substantially in excess” of those reported by the major UK banks.