by business editor Trevor Sturgess

Bailed-out banks have been denounced for competing "unfairly" with building societies.

Malcolm Mackenzie, chairman of Kent Reliance Building Society, launched a withering attack on the system that forces the Chatham-based mutual to "subsidise" failed banks which respond by interest rates that are difficult to match.

Kent Reliance, sponsor of Charlton and Gillingham Football Clubs, has to pay more than £2m into the Financial Services Compensation Scheme over the next two years.

The Building Societies Association has complained bitterly to the Government about a scheme that obliges prudent societies to prop up profligate banks.

Mr Mackenzie, who is stepping down after five years in the role, told 150 members at the society's annual meeting in Rochester: "It is particularly disappointing for us that having subsidised the failed banks with the Financial Services Compensation Scheme, the same banks set about to compete with us in ways we have found difficult to match.

"The competition by state-funded banks is not only unreasonable but unfair. It is not just an uneven playing field, it is a different playing field altogether. They are operating by different rules and the challenge to every building society is high."

This competition squeezed Kent Reliance pre-tax profits last year, down from £12.6m in 2008 to £2.2m. Mr Mackenzie said the outlook for building societies was difficult and he expected some to make a loss this year, with further mergers reducing the number of societies.

But Kent Reliance was a leading example of what could be done to change and adapt to meet new conditions.

Executive pay rises and bonuses for 2008 came under fire from several members, with one calling them "generous and lavish." But they were approved by 83 per cent of the membership, lower than last year's 90 per cent, reflecting the widespread public anger at excessive bank bonuses.

Mr Mackenzie said there would be no bonuses or pay rises for 2009. Mike Lazenby, chief executive who was given a £535,000 pay package last year, said he would be happy to give up any bonus for the next five years. "They don't make me work any harder or any less," he said.