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Nationwide has set aside £55m for customer redress as it reported a 16 per cent drop in profit due to the “prevailing low interest rates” and competition in the mortgage market.

The UK’s largest building society posted £946m profit before tax over nine months to end of December last year, compared to £1.1bn a year earlier.

Nationwide said it had taken a provision of £55m in the nine months to fund potential customer compensation after reviewing “ongoing and emerging regulatory matters, including consumer credit legislation”.

Mark Rennison, finance director of the building society, said the profit drop was “in line with expectations” as the Bank of England cut its base rate to a record low of 0.25 per cent last August.

The net interest margin –the difference between the interest it receives from lending and the amount it pays out and a key measure of profit – fell to 1.33 per cent by the end of last December, compared to 1.56 per cent at the end of 2015.

The building society said that margins were affected by “the impact of sustained levels of competition in the mortgage market” and lower interest rate expectations and warned that margins will “modestly decline during the remainder of the year”.

Total mortgage lending increased over the period by 11 per cent to £26.2bn, representing a market share of 14.3 per cent, while deposits swelled by £6.4bn, marking a 10.2 per cent share of balance growth.

Nationwide has remained competitive in the current account market, attracting 17 per cent of people who moved from other banks and building societies during the period. The building society opened a total 570,000 current accounts over the nine months, up 36 per cent from the same period in the previous year.

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