This year is set to be a challenging one both economically and on the regulatory front.
Interest rates are forecast by many to remain low, the troubled eurozone continues to dominate the headlines and the woes of some of our high street retailers are plain for all to see.
We will see the beginnings of the ‘twin peaks’ regulatory regime, have confirmation of the final Mortgage Market Review (MMR) rules and see more from Europe on the EU mortgage directive – the list is long and I could go on.
However, is it all doom, gloom and despondency, and what role can mutuals play in today’s economic environment for the UK and the consumer?
Looking back (and now 2012 is here, we can), 2011 set the stage for something of a mutual sector recovery in terms of improved lending and savings, as well as a set of generally stronger interim results and capital ratios.
The preceding years of the credit crunch were undoubtedly a challenge for banks and building societies alike, but in 2011 mutuals started to turn a corner, away from the bleak days of 2008 to 2010.
Mutuals outperformed the market as a whole in terms of year-on-year lending, with lending up 16% between January and November 2011 compared to the same period in 2010, whilst lending across the rest of the mortgage market remained broadly flat.
Of course, lending has been at a low base, but competitive and innovative products are to be found and the mutual sector continues to cater for first-time buyers, buy to let, self-build and shared ownership and equity loans.
The picture on the savings side is also brighter. In the first 11 months of 2011, household savings balances held with mutuals increased by £5.5bn, compared to a decrease in balances of £2.1bn in the same period in 2010.
It is hard to be sure, but anecdotally many savers seem to be shying away from the volatility of the equities market in favour of certainty and some savers are undoubtedly planning ahead against the daily diet of gloom to prepare for a potential rainy day.
It was gratifying to find the building society model taken as the structural template for many of the reforms to UK retail banking proposed by the Independent Commission on Banking (ICB).
The ICB recognised that the structure of societies had worked well for many years and the retail ring-fence proposed by the ICB draws heavily on building society legislation.
It said: “The precedent in building society legislation appears to provide a particularly good basis for the risk management functions of ring-fenced banks.”
We view this as a vote of confidence in the building society model, which has provided security and good returns to UK consumers both in good economic times and bad.
It is also good to see that in his response to the ICB, the Chancellor confirmed plans to implement all of the proposals put forward.
In addition, the final consultation from the FSA on the MMR, published in December, advocates prudent lending. Whilst there is much detail to analyse, much of what the FSA proposes appears sensible.
Mutuals have always endeavoured to take a prudent approach to lending. Indeed, arrears for the sector are proportionately two-thirds of the overall industry average, so the FSA’s responsible lending proposals in particular ought to be very much business as usual for us.
Now is an important time for the mutual sector, as there is clearly a growing appetite from the consumer for ‘something different’.
The BSA chairman Peter Griffiths noted in November that one of the many protestors’ banners outside St Paul’s simply read “Capitalism should be replaced by something nicer”. We could perhaps reply with one reading: “Mutuals might just be the answer”.
It is timely too that 2012 is the United Nation’s International Year of Co-operatives, further putting the spotlight on alternative business models more fitting to the mood of the nation. Credit unions too have been given a boost with new legislation that allows them to pay interest on savings.
Both in the UK and across the world, mutuals and co-operatives are actively trying to deliver something different to old style capitalism. Should the Co-operative Group be successful in acquiring the 632 Lloyds branches this would further extend the sector, which is very welcome.
Government has a role to play and the coalition pledged back in 2012 to “foster diversity in financial services, promote mutuals and create a more competitive banking industry”.
It missed a trick by not returning Northern Rock to the mutual sector when it had the chance.
Nevertheless, the sector can create its own opportunities by offering better service, more competitive rates and treating its customers more fairly than many of the plc banks can or do.
Mutuals bring diversity, choice and innovation to financial services and we are all better for it.
