Ratings agency Standard and Poor's said UK building societies have survived the financial crisis in better health than the UK banking industry as a whole, in a report.
The report said the factors keeping the building society sector on solid ground include its stable business model, adequate capitalisation, focus on prime residential lending, and customer deposit-based funding profiles.
The report, ‘Back to basics' banking keeps UK building societies on solid ground' suggested the building societies' focus on lending and deposit taking makes them good examples of "back to basics" banking.
The report was based on assments of Nationwide and Yorkshire Building Societies, which combined account for 73% of the sector's assets.
S&P predicted that this solid business model will continue to support relatively stable credit profiles for building societies through macroeconomic cycles.
The ratings agency said building societies are not without their weaknesses, including the relative business concentration of branches relative to the sector's universal bank competitors and limits on capital generation.
It also said: "We consider that there is scope for further mergers" in the sector.
