Yorkshire Building Society gets back in black

Britain's second-biggest building society improved on a 22.3m pre-tax loss a year earlier and a 10m profit in the second half of 2009.

The Yorkshire said it would continue cautious growth and is on course to double its lending in 2010.

But the mutual, which completed a merger with Chelsea Building Society in April, warned of tough conditions ahead.

"The actions we took during 2009 provided the group with strong foundations which have seen the group return to healthy profitability," said chief executive Iain Cornish.

"That said, generally in terms of the economy and housing market we do face some headwinds. It's not going to be plain sailing."

Mr Cornish said he saw a "quite volatile and slow recovery". However, he expects interest rates to stay low for some time, which should aid homeowners.

Recent industry figures have shown the housing market's recovery is faltering as a glut of sellers is not matched by demand from buyers.

The Yorkshire increased gross mortgage lending by 71 per cent to 718m from 420m a year earlier.

While this was not particularly high by historical levels, Mr Cornish said "we are lending as fast as we prudently can". He added the mutual was on track to double lending in 2010 from a total of 900m in 2009.

The building society has launched a range of competitively-priced products to attract borrowers and savers, helping it achieve more than 1,000 "best buy" mentions over the period. Mr Cornish said the group was not over-stretching itself with its attempt to grab market share.

Its net interest margin – the difference between interest income and interest paid out – increased to 0.83 per cent from 0.63 per cent a year earlier.

"We are lending very cautiously and we are gaining market share," said Mr Cornish. "We've got very strong capital ratios and partly because of the merger we've got a very strong funding position.

"The lending we are doing is profitable. We're not doing anything that's weakening our position."

Skipton Building Society this week said its core mortgage and savings division made a 5.7m half-year loss, despite a near 50 per cent increase in group profits.

The Yorkshire's total assets were up 37 per cent to 31.1bn, reflecting the addition of the Chelsea. Its savings balance was 22.7bn, enough to cover 97 per cent of its mortgage lending.

Provisions for bad debts fell to 19m from 31.3m, and the number of cases in arrears dropped by seven per cent.

Mr Cornish is "not expecting any major change" in impairments.

The group's core tier one capital ratio – a key measure of its financial strength – stood at 11.8 per cent, ahead of 11.1 per cent at year earlier but down from 12.2 per cent at the end of 2009.

Rules look fine for mutuals

Yorkshire Building Society chief executive Iain Cornish said European regulators appear to be heeding calls for the creation of a capital instrument "that fits the mutual model".

Earlier this year the Treasury opened discussions on the type of capital building societies hold – the financial cushion used to absorb losses in a crisis.

The Building Societies Association has warned European regulators against compromising mutuals with new capital instruments.

Mr Cornish said if things went the way European rules seemed to be headed a new capital instrument would be quite similar to those which exist now.