Societies are stars of gloomy banking sector says KPMG

The latest independent report on the building society sector has praised societies’ strong performance in 2006, stating that “good growth, falling provisions for bad debts and cost control have generally given building societies a strong financial performance in 2006, making them a star in the generally gloomy sector of UK retail banking.”

The 2007 KPMG Building Societies Database takes a distinctly positive tone in relation not only to past performance, but also the sector’s future prospects.

Societies of all sizes have made strong progress.  Indeed, KPMG reports that “size is no longer necessarily the best guide to a society’s profitability and capital resources”.

Indeed, the report makes it clear that smaller societies have shared in the success. "The view of some commentators that smaller societies are struggling, overwhelmed by regulation and competition" is rebutted by the "confidence and management imagination" shown by societies outside the largest group.

Overall, building societies, according to KPMG, “in general seem to have found, through diversification, a practical solution, at least for now, to issues of growth and profitability that have been worries for the past few years”.

The report explains that “so far, diversification has not resulted in increased arrears or credit losses.  Societies are also becoming increasingly sophisticated in how they manage the risks in their lending portfolios.”

Commenting on the report, Adrian Coles, Director-General of the Association, said "KPMG's report endorses many of the conclusions the BSA had itself reached from its study of building societies' recent financial results. 

“Societies represent a vibrant, successful, imaginative and innovative sector of the economy.  Over the last 18 months they have successfully diversified, and boosted their profits, while at the same time cutting their margins - to the benefit of their members.  And all of this has been achieved without cutting service standards, which are still higher than those of their plc competitors (Fact: Building Societies Provide Superior Customer Service) 

You can read more of KPMG's report here: