Profits fell by a fifth at Nationwide in its half-year results today, with the building society’s technology investment weighing down earnings.
Profit before tax tumbled 17.8 per cent to £516m for the six months to the end of September, compared to the same period in 2017, as it took a £135m charge for asset write-offs and investment in technology.
Costs were flat compared to the first half of 2017, while the bank said it is on track to achieve £100m in sustainable savings for the full fiscal year.
Underlying income also sank by £50m to £1.6bn year on year, while the building society also attracted 399,000 new customers – more than any other high street bank, but down from 427,000 new current accounts in the first half of last year.
Nationwide also saw mortgage lending grow from £16.3bn last year to £17.3bn, helping 40,500 first time buyers find a home.
Why it’s interesting
As a co-operative, Nationwide said profits were in line with expectations despite the fall, as it begins a £1.3bn technology spend announced in September as it attempts to fend off challenger banks like Monzo.
The bank predicted the move would hit profits by up to £250m this year, but predicts the investment will help it save £200m a year from 2023.
Nationwide is making the investment as well as spending £350m on improving its network of branches, which it has committed to keeping open despite the digital focus.
CFO Mark Rennison said long-term benefits would be achieved at the expense of short-term gains, adding that the market “will lead to further pressure on margins in the second half of the year”.
What Nationwide said
Chief executive Joe Garner said:
“Our first half profits were lower than last year because we have chosen to increase our investment in the future of our Society. As a mutual, we do not judge our success by profit growth alone, but by how we manage our profits to serve our members' interests. We do that by maintaining the high-quality service and excellent value products our members prize today, while also investing in building new propositions, services, and skills, so we can meet members' future needs.
“The strength of our business means we are well placed to invest confidently in the future of the Society, and we have committed to invest an additional £1.3 billion over the next five years to transform our technology estate and capabilities. This will take our total investment over the next five years to £4.1 billion and will ensure the Society makes the most of the opportunities ahead. We will develop new propositions, further enhance our service, simplify our operations and build new skills for the future.
“We continue to lead our high street peer group for customer satisfaction by a significant margin. We protected savers and rewarded loyal members, delivering £330m in member financial benefit through better rates, fees and incentives than the market average over the half year.
“The special rate ISA, available exclusively to our loyal members, contributed to a £5.1bn rise in deposits. We continued to support first time buyers, helping a record 40,500 into a home of their own – one in five of all first time home owners. And more people are choosing Nationwide for their everyday finances, with almost 400,000 current accounts opened with us so far this year.”