The annual Building Societies Database from KPMG – which summarises the financial performance of building societies – revealed that the low interest rate environment will lead to a narrowing of margins and threaten profitability.
The firm noted that margins had already been squeezed by low interest rates, and building societies were earning less from their money held in reserves.
Levies imposed by the Financial Services Compensation Scheme and reduced fee and commission levels from falling mortgage and investment-related sales were also highlighted as a major problem for the sector.
Simon Walker, partner at KPMG Financial Services, said mutuals may be forced to outsource their back office operations to enable them to focus on branches, products and customers.
He explained: “Societies will need to cut costs and focus on their customer-facing activities if they are to prosper in this new environment.”
