BUILDING SOCIETY BOSSES OPTIMISTIC DESPITE THE CREDIT CRUNCH

New research from the Building Societies Association (BSA), launched today at the BSA's Annual Conference, shows that despite the testing market conditions, the majority of building society bosses are optimistic about the year ahead. This is based on the opinion that underlying economic factors remain sound and that savers are looking to move to the relative safety of building society accounts, with societies having experienced record savings inflows over the last eight months.

An overwhelming 70% of bosses said they felt optimistic about the year ahead.  Not since the demutualisations of the 1990s has there been such a strong sense of mutual identity, purpose and opportunity to open up clear blue water between mutuals and plcs.

A number of CEOs told the BSA that despite current economic challenges, the quality of their mortgage books mean that they are well positioned to meet any potential downturn. Others are maintaining prudent lending policies and pursuing even more risk pricing.

Identifying their society as a partner consumers can trust is very high on the majority of respondent's list of priorities for 2008.  Enhancing societies' relationship with their members is being done in a number of ways including improving service levels, increasing product ranges, better member communication and working with other providers.

Unsurprisingly, the biggest issue for building society chief executives is the credit crunch and the prospect of raising funds from retail and wholesale markets as the turbulence continues. Building societies are funded predominantly by retail deposits, rather than in the wholesale markets, but the difficulty other lenders are experiencing in accessing wholesale market funds is bidding up the cost of attracting retail savings for all financial service institutions.

Commenting on the survey, Adrian Coles, Director-General of the BSA said:
“The last few months have been uncertain times for consumers and for anyone in the financial services sector. Building societies have been able to weather the storm partly because they are not as reliant as banks on the international money markets, nor have they been exposed to investments linked to the US subprime market to the same extent as other institutions. As such, savers have been turning to building societies as a safe haven for their money and CEOs expect this to continue.

“The housing market is going to see a slowdown but CEOs still have confidence in areas such as buy to let although they see house prices as likely to fall in 2008. This correction in the market is going to be tough but building society bosses are still confident. The cost of funding is currently an issue, but should this pressure reduce, chief executives are sure that the benefits of building societies’ competitive products and excellent service will continue to appeal to consumers.”

The trade association's annual survey, now in its fourth year, questions CEOs about a range of issues. Key findings include:

• On average, CEOs believe that the amount of net lending will be 9% lower this year than last
• On average, CEOs believe that net saving receipts will be 6% higher this year compared to last
• The majority of CEOs also predict that the Bank of England Bank Rate will fall to between 4.5% and 4.75% by the end of the year
• The average house price inflation prediction was a fall of 6% in 2008 and a further fall of 3% in 2009
• 96% of CEOs that answered expected the price of retail funding to rise in 2008, while 90% expected the price of wholesale funding to go up
• 97% of CEOs believe the buy to let market is sustainable.