While several building societies have been hit by crisis, the City of Derry Building Society insists it is safe and “comfortably in excess of the statutory minimum” of capital reserves. The society is not merely the smallest in Northern Ireland, it is the second smallest in the whole of the UK.
In recent weeks, six building societies have been rescued – mostly because they loaned too much on commercial properties and for buy-to-let. But the City of Derry society has made no commercial property lending for five years, avoiding the property price bubble. Repayments on its buy-to-let mortgage lending – representing about 20% of all its loans – are performing better than average.
The society also has no borrowings at all from the wholesale market, excessive use of which destroyed Northern Rock. It funds all its mortgage lending from its savings accounts.
Colin Jeffrey, chief executive of the society, admits that the recession has caused problems. “Our arrears are nothing to boast about,” he concedes. But with provisions for bad debts in the society’s accounts at a mere £16,351 on a total loan book in excess of £28m, neither are they are a particular worry. Only 20 loans are regarded as being of concern.
Jeffrey is more worried about his society’s share of the costs of bailing-out financial institutions that went to the wall. City of Derry paid over £37,000 for last year towards the Financial Services Compensation Scheme, which guarantees savings in UK banks and building societies.
For a small society with just one branch – in Derry’s Carlisle Road – and an operating profit for last year of £170,851, this is a significant burden.
“Our profits were down 15% from what we targeted, mostly because of the FSCS,” says Jeffrey. He adds: “It seems ironic and unfair that institutions that have operated in the main – with one or two exceptions – a less risky approach to business are paying a proportionately higher contribution to the FSCS, because the levies are based on the [amount held in] savings accounts.”
Another irony is that recent events have eliminated what was at one time the society’s biggest problem – protecting it from ‘carpetbaggers’ trying to take over the society to demutualise it and pocket the windfall profits. Every single demutualised building society has now either gone broke or has been bought-up by another financial institution.
The legacy of that carpetbagging mania is that the City of Derry Building Society only does business with people living in Northern Ireland. In fact, says Jeffrey, “most of our business is within Derry”. “We don’t do business outside Northern Ireland for reasons of control,” explains Jeffrey. “Control is a key word for a business of our size.” The word ‘control’ is also code for preventing future attempts at demutualisation.
Although many financial institutions are merging, this is not on the cards for the City of Derry society, says Jeffrey. It is on good terms with Northern Ireland’s other building society, the Progressive, but there are no talks about merging with this, or with the Derry Credit Union. Recent changes in law permit mergers between building societies and credit unions for the first time.
“There have been so many changes in just the last six months that I don’t think we can say never to anything,” says Jeffrey, “but certainly we see our future as an independent building society.”
And as an independent society it is doing pretty well. Its Cash ISA is at the top of the Northern Ireland best buy tables, paying up to 3%. The standard variable rate on its mortgages is 4.99%, which is not exceptional, but is competitive. So, when things are going well, why change?
The Londonderry Provident Building Society was established in 1876 and changed its name to the City of Derry Building Society in 2001. “It was not the greatest name in the world,” says Colin Jeffrey. An earlier, unconnected, City of Derry Building Society existed until 1987, when it was taken over by the Nationwide Building Society.