TACKLING costs, increasing income and expanding operations in Britain and Northern Ireland are the key strategic issues facing the First National Building Society.

Moves to tackle costs have started with a strategic review which will lead to a streamlined distribution system. First National will introduce separate specialised distribution channels for different categories of customers. Under this system, staff should be able to maximise the business potential of each category of customer while customers should get a better service.

A new commercial mortgage bureau has already been set up - First National Mortgage Corporation - to deal with applications from property developers and agents representing borrowers. New products are planned, according to managing director Mr John Smyth.

While demand for lending is expected to continue strong in the Irish market, competition is also likely to stay intense. For this reason First National, like the other lenders and deposit takers in the market, will continue to try to increase fee income, offering add on services or specialised products.

First National is aiming to reduce its cost/income ratio to the "mid 50s" by the year 2000. Even though some special costs contributed to its end-1995 ratio of 64.44 per cent, First National will have to work bard to reduce the ratio by increasing income and cutting costs.

In Britain, where First National is following a niche market policy, further acquisitions are likely. The group acquired a small mortgage management company, Mortgage Funding Corporation, at the beginning of the year from Kleinwort Benson. The company has a service agreement with Mortgage Trust.

With a strong capital adequacy ratio of 18.02 per cent at the end of 1995, First National is in a position to fund growth of its existing businesses and make acquisitions. Further acquisitions would have to be related to the group's core business, according to Mr Smyth, who added that the group was not interested in paying "big prices".

Further development is expected in Northern Ireland, where the group has up to now focused more on resource gathering than on lending. With just one central branch and a network of dedicated brokers, the group may open new offices in Derry and Newry this year. The deposit gathering operation in Guernsey is ahead of target in its first eight months.

Conversion into a public company and flotation on the stock market is still an option for First National, but Mr Smyth said the society was currently sufficiently capitalised to grow organically and to take acquisition opportunities which will probably arise over the coming year.

"We can achieve our medium term strategic plans within our current capital structure. But the board has not ruled it out if circumstances arise which made it necessary," he said.