Nationwide profits drop 18%

Nationwide's profits fell 18 per cent over the last six months.

The building society recorded underlying profit before tax of £322 million – compared to £394 million a year ago.

Nationwide chief executive Graham Beale said: "Nationwide has delivered a solid performance in a difficult market.

"Our resilience proves that the building society business model can be particularly effective during turbulent market conditions in providing both security and good value to members."

He added the building society was continuing to be run prudently and it capital ratios have increased to ten per cent, one of the strongest in the banking sector.

Looking forward, Mr Beale predicted 2009 would see conditions remain difficult for the economy

"We expect tough conditions to continue for some time to come. It is difficult to know precisely when conditions will improve materially, but we believe the coordinated actions of governments around the world have helped to lay the foundations for a future sustainable recovery of financial markets," he said.

Nationwide also now predicts house prices to fall into 2010 – but last week's 1.5 per cent interest rate cut was welcomed.

"Rate cuts will help to minimise payment difficulties and alleviate payment shock as borrowers reach the end of their existing deals," Mr Beale said.

"Reducing prices will improve affordability, which should bring about a recovery in the first-time buyers' market."

He added Nationwide's main markets would "remain challenging for the foreseeable future".

The level of mortgages three months in arrears at Nationwide now stands at 0.40 per cent – compared with 0.36 per cent in April and a UK banking average of 1.33 per cent.

Principally those falling behind with their mortgages are borrowers falling in the subprime categories – such as self-cert mortgages and bad credit mortgages.

Following the merger with Portman, Derbyshire and Cheshire building societies, Nationwide will have 15 million members, around 1,000 retail outlets, almost £200 billion of assets and over £120 billion of retail deposits.