The building society sector yesterday felt the full brunt of the global economic crisis as Nationwide building society confirmed it has agreed to swallow two smaller mutuals crippled by bad loans.

The building society sector yesterday felt the full brunt of the global economic crisis as Nationwide building society confirmed it has agreed to swallow two smaller mutuals crippled by bad loans.

The fast-track takeover of Derbyshire and Cheshire buildings societies is not subject to a member vote and will mean no payout to members.

It comes after it emerged the Derbyshire, Britain's ninth-largest building society, is suffering mounting defaults on its sub-prime mortgages, particularly those it had bought from other lenders, such that it would book a £17m loss in the first half as bad debts from sub-prime mortgages eroded profit. The UK's 11th-largest building society Cheshire forecast a loss of £10.5m in the period after facing an £11.5m hit on a loan to a property developer.

Nationwide has not been approached by other building societies and is not in any merger discussions, the society said yesterday.

Graham Beale, Nationwide's chief executive, said: "The Derbyshire and the Cheshire have independently concluded that a merger with Nationwide is in the best interests of their savers and borrowers given the financial issues faced by both. The core member businesses of both societies are in good shape and have a better future as part of a larger organisation."

Adrian Coles, director-general of the Building Societies Association, said the announcement "represents a prudent reaction by two building societies to the particular positions in which they find themselves and the continuation of a long tradition in which building societies solve any potential problems emerging within the sector."

The Nationwide, with £179bn of assets, is 25 times the size of Derbyshire, with £7bn, and 36 times that of Cheshire, with £5bn.

The lender will have almost 15 million members, around 1000 outlets, £191bn of assets and £122bn of retail deposits following the mergers.