Bernard Ginns: Mutuals have the trust, they just need the technology

It is easy to see why. Small and medium-sized businesses – the lifeblood of the Yorkshire economy – are being squeezed for whatever they have got.

Lending growth to SMEs has been negative since mid 2009, despite the public protestations from banks that they are open for business.

It is not just businesses who are feeling the pinch.

Households are coming under increasing pressure as lenders crank up the cost of borrowing despite the Bank of England keeping its base rate at an all-time low.

But instead of trying to demonstrate any real sense of contrition, top bankers continue to lavish themselves with the kind of rewards that most reasonable people find obscene.

Against this depressing background, I am pleased to report that the building society sector is enjoying a revival.

Indeed, there was an air of optimism among delegates at last week’s annual conference of the Building Societies Association.

Stephen Williams, financial services partner at Deloitte, said it felt like the most positive industry gathering in a long time. Peter Griffiths, the outgoing chairman, summed it up well in his valedictory speech: “The sun is shining on the righteous.”

It was a sound point, underlining the fact that by and large the sector looked after itself in the financial crisis without recourse to the taxpayer, unlike the banks of course.

Unlike plcs, building societies are owned by their members, who are also customers. Consequently, it is much easier to align interests.

Paul Lewis, the financial writer, highlighted the problem with the plc model in his speech to conference. He told delegates: “I’m very proud of the fact that I was a complete sceptic about demutualisation.

“The arithmetic said the conversion from mutual to bank could not work because there was another player who had to take money out of the business – shareholders.”

Deloitte published a report last week, which suggested that the sector’s good standing in reputational terms is translating into good business.

The report for 2011 shows that building societies improved capital levels and the quality of liquid assets.

They increased savings balances to £250bn, a rise of 1.6 per cent on the previous year.

The report also highlighted the important role that mutuals play in helping people buy their own homes. Gross lending rose 26 per cent on the previous year to £23.6bn.

Mutuals have made a promising start to 2012, with activity up on the previous sector last year.

A buoyant sector is good news for this region, the heartland for the historic movement and home to three of the top five biggest mutuals.

Together the Yorkshire, Skipton and Leeds building societies employ more than 12,000 people.

In his after-dinner speech, Gyles Brandreth, the author and former Treasury minister, praised the mutual movement as “the big society made manifest”.

“The benefit of your heritage is paying off,” said the former Tory MP. “What those great Victorians did is now here in this new century.”

But it faces some big challenges, not least from the continued chaos on Europe, which poses a mortal threat to under-capitalised financial institutions and their counter parties, a heavy regulatory agenda and the changing way that consumers interact with the world around them.

The movement demonstrated its good housekeeping skills and neighbourly tendencies in the 2007-08 financial crisis, as stronger societies rescued weaker ones.

These should stand it in good stead for whatever Europe spits out. Meanwhile, the regulatory challenge will always be there, I’m afraid.

On the consumer side, mutuals do need to invest more in their digital operations. Their branch networks date back many generations, which is fine for the more mature members, but to win the customers of the future, the digital natives born in the 1990s, they need to reach out more.

John Kirkbright, a Bridlington-based consultant to banks across the world, knows how far behind the financial services sector is in comparison to some other industries.

“Very few if any banks deliver a truly integrated and common level of customer service across all channels,” he said.

Mr Kirkbright singled out Turkish Akbank as a market leader in social media applications, able to respond instantly to customer complaints through Facebook, Twitter and other platforms.

Building societies have the brand and the trust. They just need to embrace the technology.