The Coventry Building Society has underlined the strength of the mutual sector in today’s increasingly turbulent times with a £905 million inflow of savings deposits in the first six months of the year.
It equates to a nine per cent rise in deposits and brings the total of new money attracted by the country’s fourth biggest building society in the last 12 months to £2.7 billion, an increase of 32 per cent.
The inflow helped to cut the society’s already low reliance on the wholesale money markets, the seizure of which caused havoc at Northern Rock, even further.
On the other side of the book, the Coventry is experiencing only marginal problems with bad debts run up by borrowers defaulting on their mortgage repayments, according to its interim results statement.
At £16.3 billion, the society’s assets were a total of nine per cent up over the six months and 26 per cent up year on year.
Profit before tax rose by eight per cent to £35.5 million.
Gross mortgage advances in the first six months rose by a modest one per cent to £1.9 billion in a generally flat market. But a fall in redemptions as lower priced remortgaging offers dried up resulted in a a 24 per cent rise in net lending to £851 million during the period.
The figure means that the Coventry scooped three times its normal share of the UK mortgage market.
It equates to nearly three per cent of the total market and about 25 per cent of all net lending by building societies.
“We have experienced a considerable reduction in redemption activity,” the Coventry’s chief executive, David Stewart, said. “During the first six months of 2008 redemptions and repayments represented nine per cent of mortgage assets at the start of the year. The equivalent proportion in 2007 was 12 per cent.”
Prudent lending means the Coventry is nowhere near as exposed to delinquent loans as some of its banking rivals.
At the half way stage just 0.18 per cent of its borrowers were more than six months in arrears, less than one third of the industry average.
Those three months behind with their payments - the advance guard of homeowners caught out by the accelerating economic downturn over the past few months - accounted for 0.5 per cent of the book and only 44 per cent of the national average.
“The overwhelming majority of our lending continues to be in low risk sectors,” Mr Stewart said. “All our mortgage advances were fully secured on residential property.
The average loan to value of our new lending in the first six months of 2008 was 57 per cent and we expect this figure to fall further during the second half of the year.
“We continue to offer buy-to-let mortgages but these remain subject to strict underwriting and are at low loan to value ratios.”
The Coventry has never entered the sub-prime mortgage market that wreaked havoc in the US and triggered the global credit squeeze last year, nor has it dabbled in the risky treasury derivatives based on such loans.
The nearest it comes to this toxic sector of the market is a small number of what Mr Stewart calls “very, very near prime” loans to individuals with minor credit blemishes.
Last year the society repossessed only about 100 properties and the figure is likely to be very similar in 2008, Mr Stewart said.
Tight control of costs enabled the society to cut management expenses as a ratio of assets to 0.43 from 0.50 at the same stage last year.
The net interest margin, the difference between the rate the society charges borrowers and the interest it pays to savers and a key indicator of efficiency, was ratcheted down to 0.75 per cent from 0.87 per cent previously.
“There’s no doubt that this is a tough climate for mortgage lenders,” Mr Stewart said. “But these results certainly testify that the Coventry Building Society is in good shape.”