Building Society deposits fall

by Gill Montia

Story link: Building Society deposits fall

The Building Societies Association (BSA) has reported that net savings balances held by its 53 members fell by £106 million in May, compared to a year earlier, with £494 million withdrawn from retail deposits during the month.

The decrease compares with a rise of £1,162 million in the same period of 2008 when the mutuals received net inflows of £855 million.

The change in societies’ fortunes reflects strong competition from banks and other institutions struggling to raise money from the wholesale funding markets.

The BSA complains that in particular, banks that have government support are able to compete unfairly for retail deposits.

The Association’s director general, Adrian Coles, comments: “These pressures are exacerbated by the current low interest rate environment.”

He explains: “There is evidence that households are looking to repay debt rather than save, and it is possible that there will be a net withdrawal (before interest credited) from the total UK savings market in 2009.”

At the start of the credit crisis the UK’s building societies were seen as a safe haven for savers’ cash.

However, recent events have cast doubt on the sector’s reputation for prudence, with Dunfermline and West Bromwich coming close to collapse and a number of small societies merging hurriedly with larger rivals.

Some societies have bigger than expected exposure in areas such as sub-prime and buy-to-let lending and earlier this month, the Financial Services Authority launched a consultation aimed at ensuring that societies with “less traditional” business models have the risk management systems and skills they need.