Nationwide blame low interest rates for its drop in profit.

Nationwide Building Society has revealed a “solid performance” for the six months to 30 September, despite a drop in underlying profits of £205 million to £117m compared to 2008.

The UK’s largest building society said that considering the difficult trading conditions it has still reported profit and continued to maintain a well capitalised and liquid balance sheet.

The mutual blamed the persistent “low interest rate environment and increased credit impairment provisions” with its fall in profit. According to its financial statement, the number of customers with more than 30 days arrears on their personal loan balances has increased to 7.20% compared with 7.15% in 2008. However, this figure is still much lower than the industry average of 19.2%.

Nationwide’s Chief Executive, Graham Beale, said: “Market conditions continue to be challenging, with strong competition in both residential lending and retail funding markets.

“Our performance has been substantially affected by the low interest rate environment and the dramatic fall in commercial property valuations which have led to compression in our margin and a sustain higher level of impairments in line with our experience during the second half of last year.”

Encouraging news for the mutual was its increase in sales of investment products, which resulted in £1 billion of customer investments in the six months.

Nationwide’s merger with its smaller rival Portman is starting to pay off. It said that costs are down 6% on a like-for-like basis through synergies and business transformation through its integration with Portman.

However, it did say that the performance of its recently acquired assets – Dunfermline, Derbyshire and Cheshire building societies had been adequate and the anticipated losses were in line with the allowances made at acquisition.