Leeds benefits as customers flee from high street banks

The mutual said strong products and good customer service helped win over customers disenchanted with big banks and worried about their global exposures. Total membership is now 696,000.

Peter Hill, chief executive, told the Yorkshire Post that Leeds won market share “from across the board”.

The society lent £769m in new residential mortgages in the first six months of 2011.

Mr Hill said the new lending “represents double our market share” with a quarter of the loans going to first-time buyers.

The society also received £189m in deposits, up 48 per cent against the same period last year, which boosted savings balances to a record £7.54bn.

Pre-tax profits rose marginally to £27.1m, bringing capital and reserves to an all-time high of £598m.

Leeds has a 0.59 per cent share of the £1.25 trillion mortgage market. Its share is growing as its giant rivals retrench, said Mr Hill.

“They are shrinking their balance sheets. Fundamentally, they are short of capital.”

Building societies are well capitalised and using their capital strength to increase their lending, he said.

Mr Hill insisted that building societies do provide meaningful competition to the big five high street banks and will increasingly become a threat to the main players.

“We have grown on both sides of the balance sheet,” he said, referring to mortgage and savings products.

“We do offer a good service. People are increasingly interested in the services we offer. Our approach is to do what we have always been doing as a traditional building society.

“Some of our competitors have been through a succession of problems which has raised questions in customers’ minds about whether they really want to do business with them.

“One of the most important things in a relationship is trust. When a consumer is being bombarded with a succession of messages that ‘undermine’ trust in an institution then eventually it’s going to affect their trust to do business with them.”

He added: “Leeds Building Society has always considered trust to be a very important part of our proposition. We are owned by our members. We are not accountable to our shareholders.”

The society has got rid of sovereign debt or counterparty exposure to the troubled eurozone countries of Greece, Portugal, Spain, Italy and Ireland.

Leeds is one of only three building societies with an ‘A’ long-term credit rating from both Moody’s and Fitch.

Mr Hill said: “We are very safe and secure. Part of what drives people’s sentiment is they are worried by global banks’ big global exposures.

“They want to put their savings in institutions they know and feel comfortable with.”

The society has total assets of £10.06bn, including £7.3bn in loans secured on residential property.

The society vastly increased its cash in hand and balances with the Bank of England from £96.2m to £723.1m over the last year.

Mr Hill explained: “We make a judgment between optimising profit and minimising the risk. Rather than have it invested in eurozone banks we have brought it closer to home.

“We are receiving 0.5 per cent from the Bank of England. Our online account is paying 3.05 per cent, which is why it is important for us to be using as much of our deposit base as possible to fund new mortgage lending growth.”

All of the society’s residential mortgage balances are now funded by retail deposits.

Leeds raised £375m in longer-term whole funding in the first half, including a £200m covered bond and £125m from the European Central Bank’s LTRO facility.

The society’s wholesale funding ratio remained broadly flat at 19 per cent, of which 70 per cent has more than one year to maturity.

Residential arrears fell to 2.76 per cent of the total mortgage book, down from 3.12 per cent in the same period last year.

Correspondingly, the society reduced the charge for impairment losses and provisions for all mortgages by £3.3m to £19.9m.

Total mortgage provisions increased to £91m, up from £79m.

Mr Hill said: “Despite the fact we are in a double-dip recession, we have continued to see reductions in customers in arrears.

“The trend has been downward since June 2009. It says despite the really challenging environment householders are doing a really good job of managing their budgets.”

The growth in new members is up 58 per cent from 21,000 in the six months ending June 2011.

@bernardginns