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Building societies are fit for the future

A report by the Centre of Banking Research analysed the relative performance of UK Banks and Building Societies

Building societies outperform banks across a number of financial indicators, according to a new report by Cass Business School, City University London.

An Analysis of the Relative Performance of UK Banks and Building Societies finds that building societies have recovered well from the financial turmoil during and after the financial crisis, are less risky than banks and are ready to face regulatory pressure and reform challenges in the future.

Report Author, Dr Barbara Casu, Director of Cass Centre for Banking Research, said: "The results of our in-depth comparative analysis of banks and building societies (using a wide variety of lending, performance and risk metrics) show that building societies perform well over different phases in the business cycle. As such building societies continue to play an integral role in supplying financial services to households throughout the UK.”

The report, produced independently by Cass, but made possible by funding from the Building Societies Association, shows:

  • That building societies typically have a lower net interest margin than banks, as they tend to offer higher saving rates and/or lower mortgage rates to their customers, providing a better deal for consumers.
  • The results show that the z-scores (an increasingly popular measure of bank stability) for building societies are significantly higher than those of banks over the sample period, indicating that building societies are, on average, less risky than banks.
  • Although lower on average, building societies’ returns are more stable and recover faster than those of banks.
  • Building societies are just as efficient as banks. Building societies cost to income ratios are not, on average, higher than those of banks, with the sector displaying good levels of efficiency with ratios around 60% on average during the sample period.
  • The sector recovered from the financial turmoil faster than their banking counterparts. Building societies have more stable asset growth than banks. Fast asset and lending growth are often considered as indicators of increased risk-taking in the financial sector.

Commenting on the report, BSA Chief Executive, Robin Fieth, said:

"The findings in the Cass Business School report help demonstrate the diversity that building societies bring. The sector has a different approach to doing business, offering choice and competition for consumers no matter where they live in the UK.

“In the years following the financial crisis of 2007 and the banking scandals that continue to occupy the headlines, attributes such as "more stable" and "less risky" are often what people want to hear when it comes to their financial providers. When weighing up the shape of the financial services sector, we urge the Government, opinion-formers and policy-makers to take research of this nature into account, ensuring our sector - with its distinct purpose and customer-owned mutual business model - has the recognition and support it needs to continue offering a better deal for consumers.”

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