Tighter margins and intense competition in the mortgage market has again eaten into profits at the Irish Nationwide Building Society. In its 1998 results the society reported a 2.6 per cent rise in pre-tax profits from £24.7 million(€31.4 million) to £25.3 million(€32.1 million) despite a 44 per cent increase in mortgage lending to £537 million (€681.9 million). Commenting on the outturn yesterday, Irish Nationwide's managing director, Mr Michael Fingleton, said he expects to see continued pressure on margins for the foreseeable future in a low interest rate environment. However, he stressed that the society's balance sheet remains very strong.
The results also reflect a 21.6 per cent increase in the society's management costs from £15 million to £18 million, mainly due to the cost of installing a new computer system and upgrading other systems last year. Meanwhile, Mr Fingleton said he continues to have an "open mind" on whether Irish Nationwide will remain an independent mutual society. The society would not have any problem with changing its status if it was thought to be in the best interests of the shareholders, he said.
"There is no brief for such a change at the moment but, if I was convinced it was the right thing to do, I would move to incorporate the society tomorrow," Mr Fingleton said.
After tax, the society achieved a 9.4 per cent growth in profits from £15.7 million to £17.2 million. The net surplus transferred to reserves was £17.2 million, bringing its total reserves to £166 million. Net interest income - the difference between the amount of interest paid by the society's borrowers less that earned by its depositors - increased from £34.4 million to £39.8 million. The number of customer accounts also increased during the 12 month period from £1 million to £1.2 million, up 12.6 per cent on 1997.
Mr Fingleton noted the society's concerns in relation to cost controls, particularly in an increasingly competitive market where margins are being squeezed on both sides of the balance sheet. Excluding the £3 million investment in its computer systems last year, he said the increase in management costs would have been of the order of around 1.6 per cent. This reduces its cost income ratio from 42 per cent to 36 per cent.
Looking ahead, Mr Fingleton said the demand for mortgages will continue to grow, although it will be two to three years before the supply of housing will match the demand. "In the interim period we do not see any reduction in house prices. At best, prices will increase at a much slower rate."
Spiralling house prices also raise issues in relation to affordability for prospective buyers. Irish Nationwide believes that, with interest rates at historically low levels, it is time for the Central Bank to relax the affordability criteria in relation to mortgage lending by financial institutions.
