Building Society Profitability

Leigh Drake
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Leigh Drake: Loughborough University of Technology

Chapter 6 in The Building Society Industry in Transition, 1989, pp 165-191 from Palgrave Macmillan

Abstract: Abstract Traditionally, maximising profitability has not been the dominant objective for building societies for a number of reasons. Firstly, as mutual institutions they have not been under the immediate pressure to adopt profitability as a central objective as in principle they have sought to balance the interests of all their customers. A second reason why profitability has been less of a central consideration with building societies compared with other sectors in the financial system is that because of their mutual status and regulation, building societies have not raised external capital on the capital market in competition with others. They have, therefore, not been required to perform according to the criteria applied by the suppliers of equity capital. Finally, the combination of mutuality, an effective cartel, a cohesive industry, and the absence for decades of an effective competitor in the mortgage market, meant that building societies collectively and individually had a degree of discretion over their objectives. They chose not to be avowedly profit maximising and any target with respect to surplus (profit) was set with a view to satisfying prudential capital requirements and as a by-product of growth objectives. While building societies collectively, through the operation of the Recommended Rate System, attempted to protect the interests of their borrower and investor members, individual building societies tended to use asset growth as a criterion for assessing their performance.*

Keywords: Interest Rate; Total Asset; Capital Gain; Mortgage Market; Mortgage Rate (search for similar items in EconPapers)
Date: 1989
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DOI: 10.1007/978-1-349-09680-0_6

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