Deloitte expert predicts building societies set to thrive in year ahead

BUILDING societies are set to flourish over the next year providing levels of capital and financial liquidity can be sustained, an industry expert has said.

Speaking at the Building Societies Association’s annual conference in Birmingham, Stephen Williams, head of Deloitte’s building societies team, said stronger financial regulations would benefit the larger societies.

“Societies typically have good levels of capital and financial liquidity, given the generally low reliance on short-term wholesale funding and limited appetite for innovative capital instruments,” he said.

“Additionally, societies are competing against the big players with attractive products in the market.”
 
In its Building Society Update report, launched at the conference, Deloitte reviews the capital position of a significant sample of the largest 40 building societies.  

Based on this, the advisor has concluded that all the societies sampled would meet the core tier 1 requirements set out in the Basel III agreement of December 2009.  Of the societies sampled, it said 80% would also have core tier 1 ratios in excess of 10.5%.  
 
“Despite the challenges that new regulation like Basel III can present, societies appear to be well placed to respond to requirements for increased levels and quality of capital, funding and liquidity,” added Mr Williams.

However, he said the societies were operating in a crowded market and with interest rates low, had to be innovative in order to secure growth.

“I can foresee new products coming onto the market during the next 12 months such as shared ownership options – perhaps in conjunction with housing associations, while generational products may also prove attractive,” said Mr Williams.

“They (societies) have to work out how to balance risk with the need to deliver decent margins but I think that with good levels of capital and strong regulations, the industry is well placed for growth.”

He said a lot would also depend on how the housing market shapes up over the coming 12 months, especially as prices still appeared in a state of flux.

Mr Williams also predicted further society mergers were unlikely as the sector had stabilised following the economic upheaval of recent years.

“There could be a trickle of merger activity but I think this has largely been completed for the time being,” he said.

Elsewhere, the conference heard that mutuals face several challenges during the year ahead, notably the possible impact on business should the Government decide to return Northern Rock to a mutual.

Many delegates said the industry also had to raise its profile so the public perception of building societies was not tainted by the actions of the banks.