NEWCASTLE Building Society chairman Chris Hilton said the economic climate has set challenges for his company for the coming year.

War in Iraq, deflated equities and low interest rates all provided their own set of problems for a society which has to please both savers and borrowers, he said.

Despite a rampant housing market buoying certain sectors of the industry, more difficult times are ahead as property rises level out, he added.

He said: "I believe the society's success is all the more impressive when you consider the past year has been a challenging one for the UK and global economies.

"I do not need to tell you that while it was a good year for borrowers, it was tough for savers.

"We are still enduring one of the longest bear markets for stocks and shares - with few signs of a sustained recovery."

He added: "With such mixed economic fortunes, it is more important than ever that we continue to serve the interests of both our borrowers and our savers in equal measures."

Mr Hilton said that 2002 had been a year of change with a new logo and new working practises that had courted praise from outside bodies.

"We feel the new look more accurately reflects our position as a modern and innovative financial insitution."

The society witnessed good growth with assets under administration increasing by £148m to £2.8bn, while profits were up by 8.3 per cent to £13.1m.