Raising interest rates for borrowers and funding all its new lending from savers rather than the expensive money markets saw Nationwide, Britain's biggest building society, increase profits sharply last year.

Chief executive Graham Beale said: "Even before the credit crunch started, we had decided not to go for massive growth in market share because that was simply uneconomic. Instead, we decided to fund our net lending entirely from retail receipts."

That meant Nationwide's mortgage market share fell from about 11% to 7.1%, with the amount of new lending down from £11.2 billion to £6.7 billion.

Such a conservative approach pushed underlying profits up by 17% to £781 million. The merger with the Portman Building Society helped strengthen the balance sheet, with total assets up 30% to £179 billion.

Beale said the housing-market outlook remained challenging with Nationwide still forecasting price falls in high single digits this year. But he added: "The market now has a much more transparent and realistic view of the cost of risk."

He welcomed the Bank of England's £50 billion-plus special liquidity scheme, saying: "We have agreed to participate in it but, along with all the other banks, we will not comment specifically on our use of it."

The inflow of savings almost trebled last year, from £3.3 billion to £9.1 billion with 1.5 million new customers. Beale admitted a large chunk of this came from Northern Rock but could not say how much.

The group has taken a £102 million writedown on its six structured investment vehicles as result of the credit crunch, and now has a remaining exposure of just £1.2 million there and £4.2 million of indirect exposure to US subprime assets.

Link to:

Columnists

Neil Collins

A banking pantomime from clueless Alistair

Anthony Hilton

City Comment: Pessimism will prevail in end

Chris Blackhurst

Profile: Big story at the Mirror: Can Sly Bailey win her battle for survival?