Jumat, 06 Juli 2012

Building society funding rules may be relaxed to boost sector's appeal and extend its reach to small business market

Building society funding rules may be relaxed to boost sector's appeal and extend its reach to small business market

By Lee Boyce

PUBLISHED: 11:36 EST, 6 July 2012 | UPDATED: 11:36 EST, 6 July 2012

Building societies could see funding rules relaxed in order to boost their appeal as an alternative to High Street banks, under proposals revealed by the Government today.

The Treasury is considering allowing mutuals â€" such as Chelsea, Nationwide and Yorkshire - to raise more funding from so-called non-members. Members include customers with mortgage borrowing and shareholding investors.

Building societies presently can currently only source 50 per cent of their funding from non-members.

A branch of the Nationwide Building Society on Putney High Street in south west London.

A branch of the Nationwide Building Society on Putney High Street in south west London.

The ability for societies to source increased funding from non-members would be an advantage if wholesale money markets became cheaper in the future.

However, wholesale funding is currently expensive due to the struggling economic climate and building societies raise around 75 per cent of their funding from members.

While the measures should help strengthen the sector and provide more competition to banks on everything from credit cards to mortgages, giving mutuals more scope to raise money from sources other than their members, it could have an impact on savings rates. 

At the moment, societies raise most of their money from customer deposits and they make up 19 per cent of the household savings market.

Savers have been an increasingly important source of raising money for financial institutions during the crisis. Even though the UK bank rate has been at 0.5 per cent for more than three years, savings rates have been high relative to it.

Pre-crisis, the best savings rates were more in line with the base rate. Today, the best instant access rate is via Dutch-owned ING Direct, offering savers a 3.24 per cent rate.

Mutuals could start lending to SMEs

The proposals will encourage building societies to lend to small and medium-sized businesses. Lending to small businesses by banks has fallen since 2009, according to the FT today.

In the consultation paper, it said: ‘We want to continue this vital role, expanding carefully over time into new areas such as SME banking. 

‘Th e Government’s commitment to review and revise building society legislation to support these aims â€" whilst maintaining the low risk approach that has served our members well throughout the crisis â€" is a positive step forward.’

The Treasury has also set out how the recent recommendations of the Independent Commission on Banking (ICB) will apply to the building society sector.

Adrian Coles, director-general of the Building Societies Association, said he welcomed the Government's focus on building societies.

He said: 'Our sector is diverse and provides services to around 25 million customers, through a model that is very different both in structure and ethos to the plc banks.

'I would echo the high level principles set out in the paper for building societies to be able to compete fairly, free from inappropriate burdens and maintain our distinctive approach and lower risk business model.'

The Treasury also said building society legislation will be aligned with ring-fencing requirements outlined by the ICB to ensure a level playing field with the banks.

The Government has said it will ensure ring-fencing changes apply to societies by amending the Building Societies Act to avoid confusing mutuals with two separate pieces of legislation.

Loss-absorbency proposals - such as building up protective cash buffers - will also apply to building societies in the same way as to banks of a similar profile, the Treasury added.

Financial Secretary to the Treasury Mark Hoban said: 'The Government has committed to increasing choice and diversity in financial services. We believe that building societies can play a vital role in this."

Graham Beale, chief executive of Nationwide, Britain's largest building society, said: ‘I warmly welcome the Government’s recognition that building societies provide an important and distinctive alternative for consum ers. 

‘We want to continue this vital role, expanding carefully over time into new areas such as SME banking.  The Government’s commitment to review and revise building society legislation to support these aims â€" whilst maintaining the low risk approach that has served our members well throughout the crisis â€" is a positive step forward.’

  • The Treasury is accepting responses to the discussion paper. Write to HM Treasury by 6 September 2012: Dan Turnbull, Banking and Credit Team, HM Treasury, 1 Horse Guards Rd, London, SW1A 2HQ or email building.societies@hmtreasury.gsi.gov.uk


Diposting oleh di

Tidak ada komentar:

Posting Komentar

Langganan: Posting Komentar (Atom)