The longest-serving chief executive of any building society in the UK has raised concerns over plans for a community bank for Wales. Alun Williams, chief executive of Swansea Building Society, warned that a community bank could have a detrimental impact on the trading of the existing three Welsh building societies, credit unions, and the only registered headquartered bank in Wales, Hodge.
The concept of a new community bank (Banc Cambria), which featured in Welsh Labour’s manifesto for the 2021 Senedd election, was formed to address the decline in full retail banking services in communities across Wales with a goal to open up to 30 branches across the nation.
“I’m worried that it will impact Swansea Building Society, Principality Building Society and, more likely, the credit union sector in Wales. I think they will take the biggest hit if a community bank is formed,” said Mr Williams who, although not against the concept of a community bank, also questioned whether taxpayers money should be used to fund it.
“I like the idea of a community bank for Wales obviously - because I spent 16 years working for the Bank of Wales, and I probably know a bit more about it than a lot of people from a banking perspective. But does the Welsh Government need to fund that? Or should the organisation that wants to deliver a community bank for Wales fund it themselves commercially?”
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Cambria Cydfuddiannol Ltd received grant funding of several hundred thousand pounds from the Welsh Government to come up with the Banc Cambria concept and concluded that the only way to take it forward was to work with an institution, with Monmouthshire Building Society chosen.
However, plans for Banc Cambria to become fully operational this year have now been delayed, with little detail on how the bank would make its money, such as offering savings accounts and mortgages to customers.
It would also potentially require a fundraise of up to £20m just to get the necessary reserves to launch, this is before the associated start-up costs. This could be financed by the Welsh Government through the use of Treasury supported financial transactions capital, though it’s not known if this will be the case.
But Mr Williams argues that the issue of bank branch closures in Welsh communities could be addressed if funding was put towards Wales’ existing financial services sector instead. “How much could we all have delivered as a package if we all had financial support? Rather than the Welsh Government backing one horse,” he said.
“If the Welsh Government funds Monmouthshire Building Society to deliver that project, should they also be funding Swansea Building Society and the Principality Building Society for us to open more branches and expand our coverage in Wales?
"But Swansea Building Society weren’t even asked by the Welsh Government to attend any of the due diligence meetings that took place. I don’t think they even knew we existed until after we raised it with them and said, ‘We understand you’re having meetings about forming a new bank and nobody’s been in touch’. They came down and had a chat then.”
He also questioned why a community bank for Wales wasn’t being delivered through the Development Bank of Wales.
“We’ve already got a Welsh Government bank that has been trading for a long time, which has a board and staff structure in place, with offices across the country, albeit they only do commercial lending. Yet that isn’t the solution to provide the Banc Cambria project. That makes no sense to me at all.”
Since it was founded in 1923, Swansea Building Society has branches in Swansea, Mumbles, Carmarthen and Cowbridge as well as a recently-opened satellite office in Abergavenny. Its head office is located on 11/12 Cradock Street in Swansea but the mutual has recently expanded into a third unit next door as it looks to grow and hire more staff.
The building society currently employs 78 staff across its head office and branches, but the chief executive sees that headcount growing to 100 in the next couple of years. But Mr Williams said he could open more branches and employ more staff at a much quicker pace with financial help from the Welsh Government.
“As a mutual, we have a limited-growth business model because we haven’t got access to the capital markets in the same way that a commercial bank has. The only way we can grow is by making a profit every year and reinvesting those profits back into the business,” he said.
“The Welsh Government is fully aware of this, but they don't see it as anything they need to do to help us. They argue that we’ve done well without any support from them, whereas we could have really gone for it with their support and grown at a much quicker pace. Maybe then we wouldn’t have needed a Banc Cambria.”
22 years at the helm
Mr Williams, originally from the Rhondda Valley, first took the reins as Swansea Building Society’s chief executive in May 2001, following roles as director of banking business at Bank of Wales and head of securities at Williams & Glyn Bank. At the time, he was the youngest CEO in the building society sector, aged 36, and the third CEO at Swansea Building Society within 15 months.
Back then, taking the helm of a small building society was not for the faint of heart. In 2001, the mutual’s total assets were only £34m and it was widely predicted that smaller building societies would struggle to succeed independently against a backdrop of increased regulation and costs associated with operating such businesses.
Big four financial services firm KPMG had even name checked Swansea Building Society as a mutual that was going to fail because of its high management expenses in relation to the size of its balance sheet and number of customers. Yet, within the first year of Mr Williams joining, the mutual had become the fastest-growing building society in the UK, growing by 35% and gross lending increasing by 48%.
Mr Williams - who had experience of winning new customers and managing customer relationships - achieved this by bringing in a relationship banking business model, common in corporate and commercial banking, into the retail banking sector.
Swansea Building Society now has branch, area, and business development managers across its branches, whose jobs are to build relationships with customers to develop the savings side of the business.
This personalised, branch-based approach has proved a success for the mutual. It was the most profitable building society in the whole of the UK in 2021 and, at the end of the 2022 financial year, it saw total assets reach £529.8m and made a pre-tax profit of £5.4m - giving the organisation greater capital reserves.
With profitability so strong, the mutual recently took the decision to pass only 1.25% onto variable rate mortgage borrowers from 31st December 2022, instead of the Bank of England’s interest rate of 3.4%. While it increased rates on its fully variable rate savings book several times.
The Swansea-headquartered mutual remains one of the few financial institutions in the UK that receives no wholesale funding or support from the Bank of England in the form of cheap funding. Instead, it lends money to the Bank of England something which Mr Williams says is unique to the mutual.
Its principal objective is the provision of mortgages on residential property in the south Wales area, with its balance sheet funded entirely by customer savings balances and its own capital reserves built up from retained profits over many years.
Global crises
In addition to growing the society under his tenure, the longest-serving chief executive of any building society has also seen the mutual through some significant global events - none bigger for the financial world than the banking crisis of 2008-2010.
Although a challenging time, Mr Williams said it gave Swansea Building Society one of the best years it had ever had.
“Customers that had banked with Northern Rock, Bradford & Bingley, RBS or HBOS moved their money to us. We managed to grow our balance sheet from £130m of total assets to £180m in one year. That gave us the launchpad to grow the business faster than we would have been able to had there not been a banking crisis.”
But there were also a lot of lessons the chief executive took from the crash, including taking care where the mutual invested its surplus liquidity. The society keeps operational accounts with the four biggest UK banks (Barclays, HSBC, Lloyds and NatWest) while every surplus pound goes into its BoE reserve account.
“We keep around 25% of the total assets in liquid funds or cash readily available to draw on at any time, and we only invest that in UK banks and the Bank of England,” he said.
However, fears of another global financial crisis have resurfaced recently after banking giant UBS swept in to buy its crisis-hit rival Credit Suisse and HSBC acquired the UK arm of Silicon Valley Bank (SVB).
While today’s events have caused jitters in the global markets, Mr Williams said the immediate response by regulators in America, Switzerland and the UK is different to what happened before.
“At the height of the original banking crisis, regulators all around the world didn't react quickly enough to stem the contagion,” he said, adding that, since 2008, all regulators made sure that the banking sector was much better capitalised in terms of the amount of capital each bank held.
“It's inconceivable to me that there'll be bank failures in the UK today that wouldn't be dealt with by a merger really swiftly in the way Silicon Valley Bank UK was taken over by HSBC.”
The mutual also saw its best financial years since in its 100-year history during the Covid-19 pandemic. This was partly because the mutual was able to keep its branches open throughout the pandemic to give people, particularly elderly and vulnerable, access to their money.
Mr Williams said: "The number of people visiting our branches and the number of new savings accounts that are being opened have gone through the roof. The first three months of 2023 have been the busiest three months we've ever had."
The rise in online banking
The move from physical branches to online banking has been one of the biggest changes to the banking industry Mr Williams has seen in his 22 years running Swansea Building Society. A week rarely goes by without news of yet more high street bank branches closing.
Last month, Lloyds and NatWest announced that they would shut another 81 banks between them around the UK, including at least five in Wales, as more people increasingly manage their finances online.
“When those banks close, they aren’t just closing the physical branch. Staff are made redundant rather than deployed elsewhere so communities are also losing those well-paid professional jobs,” said Mr Williams, who sees the major banking players only keeping branches in the larger towns and cities in the future.
However, Swansea Building Society is one of the few mutuals bucking the trend with its dedication to opening, not closing, branches. A decision which has seen its footfall numbers grow in communities that have lost those major bank branches. Its Mumbles branch has seen record account openings since the village saw all of its big bank branches close their doors.
The building society is also drawing people to its branches from a wider radius, with some older customers travelling up to 25 miles to do their banking in person rather than online. In recent years, the mutual has seen people travel from Tenby, Haverfordwest and Cardigan to visit its Carmarthen branch and open an account.
“You’re not going to get most savings customers in deepest west Wales opening an account with an online-only bank that’s nearest office is in England. They’re not going to put their savings there, whether you’re covered by the financial services compensation scheme or not,” said Mr Williams.
Savings customers typically range between 0-to-21 years and 55-to-110 years for the building society, with many of its older demographic located in west Wales.
The mutual tries to cater for all kinds of customers and age brackets, with some older savers still operating a traditional passbook account. While it launched its online savings access to avoid losing the younger generation of savers (aged between 21 and 55) to the banking sector.
Its online services are also seeing Swansea Building Society pick up business from savers in north Wales and Mr Williams says he would more likely open a future branch in that area over Cardiff or Newport.
Self-build regulations
As well as savings, Swansea Building Society commercially lends to smaller housing developers, building between one to 25 units, and is one of the strongest self-build mortgage providers in Wales, particularly in west Wales. It also lends on sustainability, offering green mortgage products priced at a lower mortgage rate if the property has a higher energy performance rating.
But new capital regulations being proposed by the Prudential Regulation Authority (PRA), part of the Bank of England and responsible for regulating the financial sector, could have unintended consequences for the self-build market. The proposals are intended to strengthen the risk management of banks by setting out the amount of capital they need to hold against the risks they take.
This includes higher risk weighting for self-build mortgages despite borrowers experiencing lower arrears, but will have a disproportionate impact on self-build mortgage lending by small regional building societies, said Mr Williams.
“If these new capital regulations come through as they’re being proposed at the moment, we’ll have to hold three times more capital to lend on a self-build mortgage than an old house already built. If that happens, we would have to withdraw from the self-build market completely.”
This risks exacerbating the housing market in Wales further which is already facing challenges of low supply and high demand driving up house prices. “We’re not building enough houses and that has created a false value of the existing housing stock in Wales which is expensive in relation to the average earner,” said the chief executive.
“But you’re not going to see the big developers like Persimmon, Barrett or Bellway building in rural parts of west Wales, they tend to stay around the M4. So we’re reliant on lots of smaller developers and self-build projects in west Wales.”
“The Welsh Government helps housing associations with grant funding towards building homes but they should also look at how they can ramp this up in the private sector. Supply isn’t going to increase quickly enough through social housing alone.”
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