Yorkshire Building Society has delivered another solid performance and remains one of the UK's strongest savings institutions in a year of unprecedented turmoil in the financial markets. Its exceptionally strong Tier 1 capital position improved further during the year, without recourse to taxpayer recapitalisation, and its strong funding and liquidity positions were also strengthened.
The Society had no losses from the failed Lehman Bros or Icelandic banks. It has not lent in the commercial or buy-to-let mortgage market and has not acquired mortgage portfolios originated by other lenders. The Society also protected savers by not passing on the full impact of the Bank of England base rate cuts, which over the course of a year will make its savers £50m better off than they would have otherwise been.
The Yorkshire's performance has not been immune to the global banking crisis or the economic recession, but its underlying financial strength means it is very well placed to weather the current storm.
"The Yorkshire reacted extremely early to a crisis which began in mid-2007 and intensified throughout 2008. Our capital and our funding position are amongst the very strongest in the UK financial sector, we have increased even further our already substantial holdings of high quality liquid assets and we have never been active in the buy-to-let, commercial lending or mortgage portfolio acquisition markets - parts of the market which appear to be suffering most as the recession begins to bite.
"At a time when competition for retail funds has been particularly aggressive, we have grown our retail member savings balances by £1.2bn, more than enough to fund all our mortgage growth in 2008 and without having to resort to unsustainable savings rates. Our commitment to savers is demonstrated by the fact that we haven't passed on the full impact of the Bank of England base rate cuts. As a result, over the course of a full year, our savers will be well over £50m better off than they would otherwise have been. Our core operating profits, although down, remain healthy, and much of the reduction reflects the deliberate decisions we have taken to increase liquidity, lend even more cautiously and protect savers - all of which impact directly on our margins. We have also increased our mortgage loss provisions to reflect our belief that unemployment will rise further and house prices will fall significantly again in 2009.
"Our pre-tax profits have been affected by the extraordinary market conditions in which we have had to operate. We have been adversely impacted by the cost imposed on us for the bailout of the failed Icelandic, Bradford & Bingley and London Scottish banks through the Financial Services Compensation Scheme. I believe that our proportion of these costs, as a building society, is disproportionate and we are lobbying hard to protect our members from further inequitable payments. I am delighted that over 150 MPs have signed the Early Day Motion on this, tabled by one of our local MPs, Ann Cryer. We also hold a small portfolio of structured treasury investments that have adversely affected profits this year, although many of these investments continue to perform and yield a good return. The portfolio accounts for only around 0.3% of the Society's total assets, equivalent to only 0.7% of the Group's very strong solvency ratio of 14.8%.
"The outlook for 2009 is every bit as challenging as we saw in 2008 however the exceptional strength of our capital, liquidity and funding positions mean we continue to be very well placed. As a mutual, our primary focus is on serving our members' interests. In this climate that means maintaining our financial strength and doing everything we can to help savers and borrowers through these very difficult times. Our capital strength in particular gives us the flexibility to do this, even at the expense of short term profitability".
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