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Coventry BuildingSoc (CVB)

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Tuesday 03 March, 2009

Coventry BuildingSoc

Final Results

RNS Number : 2173O
Coventry Building Society
03 March 2009


The Coventry, the UK's fourth largest building society, announces its financial results for 2008.

Highlights include:

Significant growth in savings and mortgages

  • Over 100,000 new savers chose the Coventry in 2008.

  • Retail savings balances increased by £2.1 billion (20%), fully funding the growth in mortgages and other loans of £1.4 billion (12%).

  • Share of growth in savings balances of all UK banks and building societies estimated at 5% (source: BSA).

  • Net mortgage lending totalled £1.4 billion representing 3.4% of total market and 29% of net lending undertaken by building societies (source: CML).

  • 99% of mortgages funded by retail savings, reserves and capital.

Strong financials

  • Operating profit before impairment and exceptional items was £71.7 million (2007 - £69.0 million).

  • Operating profit before exceptional items was £63.3 million (2007 - £67.0 million).

  • Profit before FSCS levy and charitable donation was £39.4 million (2007 - £67.0 million).

  • £1.6 million donated to the Poppy Appeal as a result of the Poppy Bond developed in partnership with The Royal British Legion.

Stable platform

  • Cost to mean asset ratio fell from 0.48% to 0.40%, the lowest level reported by a UK building society group.

  • Credit quality remains high - accounts in arrears significantly less than half of CML average - and loan loss provisions amongst the lowest of any larger UK lender.

  • All growth is organic and concentrated in low risk, residential sectors. The Society has never purchased a mortgage book and has no exposure to second charge or commercial lending.

  • Strong capital position - tier 1 ratio of 35.2% without Basel II transitional floors and 10.5% with Basel II transitional floors.

David Stewart, Chief Executive, commented on the results: 

'I am pleased to report that the Coventry has performed strongly in what has been a difficult environment for mortgage lenders.

'Our ability to attract retail savings and the consistent emphasis we have placed on low risk residential mortgage lending ensured we were well placed to cope with the tough operating conditions.

'We have grown significantly our share of both the savings and mortgage markets and continue to deliver strong profits. These results show that Coventry Building Society remains in very good shape and in 2009 I look forward to building on the success of recent years.'

Exceptional growth in savings underpins increase in mortgage book

'We continue to finance our mortgage lending with retail savings deposits. At 31 December, over 99% of the Society's mortgage book was funded by retail savings, reserves and capital.

'Since 2007, competition for savings has been intense as a result of the 'credit crunch' precipitated by the closure of the wholesale money markets.  Our performance against this background has been exceptional.

'In 2008, our estimated share of the growth of savings balances for all UK banks and building societies reached a record 5%. Retail savings balances increased by £2.1 billion, to bring the combined growth in 2007 and 2008 to £4.2 billion, or over 50%.  As a result we once again made sure that the strong growth in mortgages was funded comfortably from retail deposits.' 

Mortgage assets concentrated in low risk sectors

'In view of market conditions, mortgage lending in 2008 was managed down from the record levels reported in 2007. Gross mortgage advances totalled £3.1 billion (2007 - £4.2 billion).

'We were not alone in restricting our appetite for new business.  However, we have remained one of the country's most active lenders and this can be seen in a substantial increase in market share.  In 2008, we estimate that the Coventry was responsible for approximately 3.4% of all UK net mortgage lending and 29of that undertaken by building societies.  I believe these are the highest figures in the Society's 125 year history.

'This performance was made possible by the strength of our funding position and also by the very high quality of mortgage lending undertaken in 2008 as well as in previous years.  Our consistently prudent underwriting helped ensure that profitability was not undermined by the rising arrears levels and accompanying credit losses that have been reported elsewhere.

'As in previous years, in 2008 the overwhelming majority of our lending was in low risk sectors.  Of the £3.1 billion of gross mortgage advances, £2.3 billion (74%) were first charge loans made to owner occupiers with an unblemished credit history.

'We continue to offer buy-to-let mortgages but these remain subject to strict underwriting and are at low loan to value ratios. During 2008, we advanced £789 million for buy-to-let properties where the loan to value was below 65%. Only £38 million was advanced at ratios of between 65% and 85%, representing only 1.2% of total advances. No buy-to-let lending has ever been undertaken at a loan to value ratio above 85% and, since March 2008, our maximum limit has been 65%.

'At the start of 2008, we withdrew entirely from all credit impaired lending, and advances in this area in 2008 were negligible The lending we have undertaken in this sector has always been limited to categories generally recognised as 'near prime' or 'light'. Historic lending on these types of products accounts for approximately 0.5% of our loan book.

'In light of difficult economic conditions, unsecured lending in the year was restricted to £12 million (2007 - £56 million). Unsecured loans represent substantially less than 1% of total loans outstanding.

'The Society has never purchased a mortgage book, preferring to retain control of the origination and underwriting process. Nor have we outsourced responsibility for mortgage administration. I believe this strategy has contributed to the continuing low number of our borrowers that are behind with their mortgage payments.

'At 31 December 2008, only 0.30% of mortgages were more than six months in arrears, a figure that compares very favourably with the Council of Mortgage Lenders' average of 0.87%. This strong position is also reflected in three month arrears levels, where the Coventry's arrears rates are also substantially less than half the market average.

'For buy-to-let mortgages, our comparative position is, if anything, even stronger. Since first entering the buy-to-let market, we have insisted that all borrowers have significant deposits in place.  The benefits of this tight underwriting are now clear to see. At 31 December 2008, just 0.69% of buy-to-let cases were more than three months in arrears - very significantly below the CML average of 2.32%.

'These low levels of arrears are reflected in the very modest provision required for loan impairment. At £8.4 million, the 'bad debt' charge for the year represented only 0.06% of total loans.  This total, which includes all provisions made against both mortgages and our small portfolio of unsecured loans, is certain to be one of the lowest reported by any larger UK lender.'

Cost efficiency remains a competitive advantage

'In spite of significant growth in customer numbers, expenditure was held to 2007 levels. Management expenses as a percentage of average assets fell to 0.40%, an improvement of 0.08%. On the basis of the latest published information this is the lowest ratio of any building society group.  The cost to income ratio also fell, from 48.4% to 47.4%.'

Impact from the wider financial markets

'During 2008, financial institutions across the world have encountered serious problems. In many cases, action taken by governments and central banks have helped mitigate the effect of these difficulties.

'However, 2008 did see a number of banks fail, in doing so creating losses for counterparties and resulting in claims on the Financial Services Compensation Scheme (FSCS).

'As a result we have needed to plan for additional contributions to the FSCS to recompense savers, in particular those at Bradford & Bingley but also for UK customers of Icelandic owned banks and of the London Scottish Bank.  We have provided £11.4 million for the Coventry's contributions to the FSCS.


'One of the principal causes of the credit crunch was the extent to which some banks had moved away from the traditional way of funding loans by raising retail deposits and instead made use of money markets to accelerate asset growth.

'It is therefore somewhat ironic that the 'bill' for some of these failures will fall disproportionately heavily on building societies that prudently funded mortgages largely from savings balances. Nevertheless, the amounts involved remain relatively small in relation to our profits and reserves and as these results show, the Coventry remains well placed to deal with this type of unexpected incident.

'We have also made a 'one-off' provision of £23.9 million for the potential non-recovery of debt securities of five years duration purchased in 2005 in Singer & Friedlander/Kaupthing. The Society is not exposed to further write-downs in relation to these investments and it is possible that recoveries will result in credits to the Society's income statement in future years.  In particular, the provision does not take into account a potential set-off of a treasury instrument of £5 million issued by the Society to Kaupthing Singer & Friedlander.  

'I can confirm no other investment has been made with any Icelandic bank. Nor has the Society placed any cash on deposit with any Icelandic bank at any time since 2005.'


'The FSA granted Coventry permission to use the Basel II Internal Ratings Based (IRB) approach to credit risk and capital management from 1 January 2008. This permission reflects our detailed understanding of our loan book and the control of our credit risk profile. It allows us to set capital levels using internally developed models rather than through percentages set by the FSA.

'The Society retains a strong capital position with a tier 1 ratio of 10.5%. The extent to which we are able to set capital levels using Basel II is restricted until 2010 due to the imposition of transitional floors on capital levels held. The Coventry would have a tier 1 ratio of 35.2% without this transitional floor, indicative of the very high quality of our assets.

'In January 2009 the Coventry gained approval as an Eligible Institution under the UK Government's Credit Guarantee Scheme.  We are therefore eligible to apply for UK Government guarantees over debt instruments issued by the Society under the terms of that scheme.'

Stable credit ratings

'Our strong trading performance and robust capital position is reflected by the independent assessment of credit rating agencies.  The Society has a stable 'A2' rating with Moody's and a stable 'A' rating with Fitch.  Throughout the credit crunch, Coventry has retained strong and stable ratings, one of very few banks or building societies to do so.'

Independent awards

'The progress made by the Society under difficult operating conditions can also be seen by the number of independently assessed awards won during the course of 2008. These awards encompass all aspects of the business, from product design to customer service as well as the importance we place on ensuring that Coventry Building Society remains a great place to work.

'Highlights included being named 'Best Savings Account Provider' in the Personal Finance Awards and 'Best Over-50s Account Provider' by Moneyfacts. Moneyfacts also awarded the Society the title of 'Best Variable Rate Mortgage Provider', Moneywise recognised Coventry as 'Best Flexible Mortgage Provider' and Pink Home Loans named us 'Best Lender'.

'Our Coventry-based call centre was placed in the Top 20 of UK call centres for customer service in the Sunday Times awards and identified as best in class for continuous improvement at the European Call Centre Awards. We were also named 'Employer of Choice' in Coventry and Warwickshire.

'These were just some of the 22 awards received in 2008 - the most in our history.'


£1.million donated to Poppy Appeal

'The building society sector has an enviable reputation for supporting charitable and community activities and Coventry is no exception.

'In these difficult economic times, we have increased our efforts in these areas and a number of additional steps have been taken to encourage staff volunteering in particular and our support of good causes in general.

'One high profile initiative was launched in October when we were delighted to partner with The Royal British Legion to raise funds for the annual Poppy Appeal. In addition to offering an attractive interest rate on a fixed rate savings bond, we pledged to donate an additional amount to the Poppy Appeal.

'We were very pleased with the response that resulted in a donation of £1.6 million.  This is an excellent result and I hope it will help fund a number of vital projects in 2009 and beyond.'


'have no doubt that 2009 will prove every bit as challenging as 2008.  The prospects for the housing market remain uncertain whilst the onset of very low interest rates places particular strain on institutions that seek to fund growth by attracting new savings balances.

'Nevertheless, Coventry Building Society remains very well funded, and our solid capital base and strong asset quality will help mitigate the effects of any further weakening in economic conditions.  Recent experience demonstrates we have the right business model for these difficult times and in 2009 I look forward to our building on the success of recent years.'


Notes to editors

  • Full details of the results for the year ended 31 December 2008 are attached.

  • Coventry Building Society is the fourth largest building society in the UK with assets of £17.4 billion.
  • For more information or additional comment please contact Richard Field, Head of Communications on 0870 607 7727 or email [email protected]

Group Income Statement





Net interest income



Other income and charges



Net gains/(losses) from derivatives



Total income



Management expenses



Operating profit before impairments and exceptional items



Impairment on loans and advances to customers



Release of provisions



Operating profit before exceptional items



Provision for FSCS levies



Provision for impairment of debt securities



Profit after impairments and exceptional items



Charitable donation to Poppy Appeal



Profit for the year before tax






Profit for the financial year



Group Statement of Recognised Income and Expense





Profit for the financial year



Actuarial (loss)/gain on defined benefit pension plan



Tax on actuarial (loss)/gain on defined benefit pension plan



Fair value movements on available-for-sale assets taken to reserves



Tax on fair value movements taken to reserves



Net (expense)/income recognised directly in reserves



Total recognised (expense) and income



Group Balance Sheet






Liquid assets



Derivative financial instruments



Loans and advances to customers



Hedge accounting adjustment



Tangible and intangible fixed assets



Other assets



Total assets










Derivative financial instruments



Other liabilities



Subordinated liabilities



Subscribed capital



Total liabilities







Total liabilities and equity



Group Cash Flow Statement





Cash flows from operating activities



Cash flows from investing activities



Net increase in cash



Cash and cash equivalents at start of year



Cash and cash equivalents at end of year



Key Ratios





Tier 1 capital ratio - Basel I (1)



Tier 1 capital ratio - Basel II with transitional floor (2)



Tier 1 capital ratio - Basel II without transitional floor (3)



Retail savings growth



Asset growth



Growth in loans and advances to customers



Net interest margin



Management expenses to mean assets



Cost to income



(1) Tier 1 ratio based on Basel I risk-weighted assets.

(2) Tier 1 ratio under Basel II with transitional floor of 90% of Basel I risk-weighted assets.

(3) Tier 1 ratio based on Basel II risk-weighted assets without the impact of the transitional floor.

This information is provided by RNS
The company news service from the London Stock Exchange

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