Building society mergers on track

Barnsley Building Society was rescued by Yorkshire Building Society

Two mergers between building societies were being completed on Wednesday, although the sector says it remains strong despite the financial crisis.

Barnsley Building Society announced in October that it was being rescued by the larger Yorkshire Building Society.

This deal was being rubber-stamped on Wednesday, the same day as the merger between the Chelsea and Catholic societies was being completed.

But societies say that they suffered less than banks in the global crisis.

Exposure

The Barnsley searched for a merger after being exposed to a possible loss of up to �10m deposited with Icelandic banks.

Iain Cornish, chief executive of the Yorkshire Building Society, said that the Barnsley was an "old-fashioned" society but had been caught up by the problems in Iceland.

The merger was among a number announced in recent months.

Skipton Building Society agreed in November to merge with the smaller Scarborough Building Society, and in September the UK's biggest building society, the Nationwide, agreed to stage a rescue takeover of two small societies, the Cheshire and the Derbyshire.

Adrian Coles, director general of the Building Societies Association, said that building societies had been affected by the credit crunch.

This was partly because of the "overblown" mortgage market, which was now going through a "painful correction".

But he argued that building societies in general had been more careful with their lending and so were left less exposed than the banks.

These institutions needed to be aware of maintaining some returns for savers, so he predicted that even if Bank of England interest rates fall further, this would not all be passed on in lower mortgage costs.

An inflow of funds from mortgage lending is needed to pay something to savers, he said.