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Nationwide restates commitment to HAs amid plans to close commercial property business

Nationwide Building Society has reaffirmed its commitment to the social housing sector amid an announcement that it is closing its commercial real estate division.

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The building society said it will be shutting its £2.76bn commercial real estate (CRE) lending business, which it has been running down since 2012 as part of the group’s strategy to dispose of non-core CRE assets.

Publishing its interim results to September 2016 today (18 November 2016), Nationwide said it had taken a strategic review of the CRE business and concluded it is ‘no longer key to the group’s vision for the future and as such the decision has been made to cease any further lending to new and existing CRE customers’.

It said it will continue to maintain a ‘dedicated service’ for each existing CRE customer throughout the remainder of their loan term, but that it will ‘ultimately culminate in the closure of our CRE business’.

As a result of deleveraging activity undertaken in recent years, it said the overall commercial portfolio is increasingly weighted towards registered social landlords (RSLs), with balances of £7.5bn, slightly down from £7.6bn in April 2016. It also has a portfolio of loans made under the government’s project finance initiative amounting to £1.1bn, compared with £1.2bn in April.

The social housing loanbook increased from £6.3bn in 2008 to over £8bn by 2014, through both organic growth and mergers with Derbyshire, Cheshire and Dunfermline building societies, the latter of which had nearly £0.7bn in loans.

Nationwide said it will ‘will continue to provide funding to registered social landlords and existing project finance customers.’

A Nationwide spokesperson reaffirmed that position to Social Housing, saying the society ‘will continue to consider new funding proposals for new and existing customers’ and that it has ‘no plans to withdraw from this sector’.

It comes weeks after Nationwide confirmed that it is moving its Scottish social housing lending team to Northampton, when it again restated its commitment to the sector.

Registered social landlord lending represented 66 per cent of its total commercial lending business in the six months to September 2016. The society described the RSL business as stable and ‘fully performing’, and both  ‘long-term and low risk in nature’.

Combined with project finance loans, they represent 76 per cent of its £13.1bn in commercial lending balances.

There have been no losses incurred on either the registered social landlord or project finance portfolios, no amounts are in arrears and there are no instances of forbearance.

Nationwide said the RSL portfolio is risk-rated using the group’s internal rating models with the major drivers being financial strength, independent viability assessment ratings provided by the Homes and Communities Agency and the type and size of the registered social landlord.

It said exposures are weighted more towards the ‘stronger risk ratings’ and, against a backdrop of a long history of zero defaults, the risk profile of the portfolio remains low.

On project finance, it said the majority of loans are secured on projects which are now operational and benefiting from secure long term cash flows, with only one case remaining in the construction phase.

Its commercial lending impairments relate exclusively to its £2.8bn CRE lending, down from £3bn at April 2016. The move to shut down CRE comes despite a continuation of improved CRE market conditions in the early part of the period, including ‘increased liquidity and capital values’.

Nationwide’s overall pre-tax profit fell to £696m in the six months to the end of September, down from £802m in the same period a year ago and resulting from ‘continued margin pressure due to the prevailing low interest rate environment’ and investment in the business.

Joe Garner, who joined the building society earlier this year as chief executive, said: ‘Despite economic uncertainty following the EU referendum, the Society has continued to lend to help our members get onto and move up the housing ladder, with record net lending in the half year.’


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