5. The Performance of Building Societies: A Comparative Analysis

This chapter presents an empirical analysis of the performance of UK banks and building societies since the large-scale demutualisation process ended in the year 2000. Our results highlight the substantial impact of the financial crisis on the sector. Return on Equity (ROE) and Return on Assets (ROA) decreased for both groups in the wake of the financial turmoil, with 2008 and 2009 being particularly difficult years. However, as the UK economy recovers, the outlook is positive for both groups. Asset and loan growth are positive and the entry of new competitors seems to have had an encouraging effect on activity. Capitalisation ratios are above the regulatory guidelines and both groups are currently in a position to meet the regulatory minimum leverage ratio. Building societies in particular have recovered well from the financial turmoil, and they appear less risky than banks on a variety of measures, from lower volatility of earnings, lower volatility of net interest margins (NIMs), and higher z-scores.