Nationwide profits hit by bad debts

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Nationwide's pre-tax profits for the year to April 4 were down 69% at £212 million as provisions for bad debts rose sharply to £394 million - margins have also been impacted by record low interest rates.

The building society also took a £241 million hit from its levy paid into the Treasury's Financial Services Compensation Scheme (FSCS).

Nationwide said this system was "illogical and unfair" because it was being punished with a bigger bill to reflect its larger share of the savings market despite being a lower risk business.

Nationwide has not needed support from the taxpayer and instead shored up weaker rivals, taking over Derbyshire and Cheshire building societies and buying the savings assets of the ailing Dunfermline in March.

But the mutual is calling for a rise in the FSCS deposit protection limit from £50,000 to £100,000 to reassure savers with independent institutions they have the same level of protection as with nationalised or part-nationalised banks.

In the second half of the year, state-owned NS&I and Northern Rock took more than 70% of the savings market as fearful savers worried over the health of many banks.

Nationwide said it had "remained strong in the midst of all this turbulence" because it gains more than 70% of its funding through savings deposits, making it less reliant on wholesale funding.

But the building society warns of a tough year ahead and said it expects the economy to remain in recession until "at least the end of 2009".

It also predicts any recovery next year will be "sluggish" as consumers pay down debts and the Government either hikes taxes or cuts spending to control a spiralling deficit.