By Adrian Coles, Director-General of The Building Societies Association.

The banking sector, broadly defined to include all lenders and deposit-takers, is emerging from its greatest ever recession. The last three years have been extra-ordinary, with the closure of previously well functioning markets, the collapse of hitherto well respected institutions, a huge commitment of taxpayer resources, and a devastating loss of trust in the banking sector.

The UK mortgage market has, sadly, illustrated these trends very effectively. The securitisation market is a fraction of its former size, many lenders have disappeared, levels of lending activity, on some measures, have fallen by 90%, and major lenders have been nationalised, closed by the regulators, or received significant taxpayer investment. Connected to all this, but not caused by the crisis, has been a reversal of the historic trend in the UK towards the growth of owner-occupation. The proportion of owner-occupied households peaked as long ago as 2003 at 70.9%, and had fallen steadily to 67.4% by 2009/10.

In the light of all this, what do UK mutuals have to offer? A business model that, in general, did not require taxpayer investment to survive, and saw a strong recovery in financial strength during 2010; an attitude to risk that sees mutuals’ mortgage arrears, proportionately, around two-thirds of the industry average; an attitude to service that results in a wide range of measures of customer satisfaction exceeding those in the plc sector; member engagement policies that give most customers a vote on directors pay (what impact might such an innovation have in the banking sector!) among other matters; and, most importantly, a wide range of increasingly attractive mortgage and savings products.

Over the last couple of years the mutuals have consolidated, in two senses. First we have seen a number of mergers; some of these have involved stronger mutuals taking over weaker institutions, others have been long-term strategic alliances. Secondly the sector has consolidated in the sense of slowing down, taking into consideration the huge changes taking place, strengthening their key financial ratios (such as capital, costs, and profitability) and re-evaluating carefully what the customer needs and what a mutual can offer. This was a sensible reaction to recent events. Some have suggested that mutuals might have missed a historic opportunity, given the weakness and failures in the plc sector; however, given the magnitude of the issues arising in recent years, and the extent of tax-payer subsidy given to otherwise failing banks, a slow and measured analysis, followed by action, seems by far the most appropriate approach.

This was the theme of the recent BSA Annual Conference. One session had the title “Mutuals Making Things Happen” with plenty of evidence given to support that title. BSA Chairman David Webster’s speech highlighted the opportunities mutuals now had, and the plans many had to increase their mortgage lending this year. The generally up-beat event, with a bigger attendance than last year, was marked by a huge confidence that for mutuals the worst, for the time-being at least, was over and that the market was crying out for the service, products and approach to business that mutuals can offer.

In this respect the mutual finance sector is absolutely in line with the public policy debate lead by the Coalition. The May 2010 agreement establishing the new government said it wished to foster diversity, and promote mutuals, as a way of ensuring that the financial services market was competitive, and delivered what customers wanted. A wide range of other commitments were made to give co-operative organisations, formed by staff and/or customers, a bigger chance of competing successfully for contracts to deliver public services. We are on the eve, potentially, of a major expansion in co-operative and mutual provision of services of all types – from the finance sector, to areas as diverse as the health service, schools, child care and even football. At the BSA we look forward to a significant involvement in these exciting developments!