Record operating profits for Leeds

Leeds Building Society has unveiled record operating profits and announced plans to increase its mortgage lending by 25% this year.

The UK’s fifth largest building society said it hoped to lend a total of £1.25 billion in 2011, after seeing its savings balances increase to a new high during the past 12 months. The group advanced £984 million in 2010, 7% up on the previous year.

It said it had continued to adopt a “prudent approach” to lending, with all residential mortgages backed by savers’ deposits, while the average loan to value ratio on new loans was just 53%.

The mutual sector has complained of stiff competition for savers’ money from the nationalised and part-nationalised banks and from Government-backed National Savings and Investments during the past couple of years.

But Leeds bucked the trend, growing its savings balances by £245 million during the year, to stand at a record £7 billion – more than twice the amount that would be expected for a building society of its size.

It credited some of its success on the savings front to the popularity of its fixed rate bonds, which, unlike most products on the market, allow customers unlimited access to a proportion of their money without penalty during the product’s term.

The lender also raised £250 million of long-term funding through a covered bond issue, the first money raised by a financial institution in the UK sterling covered bond market since June 2007, and the first group ever to use residential mortgages as a security. It also raised a further £250 million through the wholesale markets, meaning it has now secured the vast majority of the long-term funding it needs for 2011.

But the difficult economic conditions led to the group suffering losses of £44.2 million through defaults on residential and commercial lending, although this was down from £52.5 million in 2009. There was also a slight fall in the percentage of people who were in arrears of 2.5% or more of their outstanding mortgage debt, with this dropping to 2.16% from 2.24%.

The group said its funding position remained strong, with reserves of £505 million and a tier 1 capital ratio of 13.9% – significantly ahead of regulatory requirements.

It made an operating profit of £84.5 million, up from the previous year’s record of £80.1 million. Once impairment charges and provisions were taken into account, bottom line profits were £42.2 million, 33% more than in 2009.