LONDON (REUTERS) - Nationwide, Britain's biggest customer-owned financial services group, plans to issue a new form of so-called loss-absorbing debt that could shift some of its losses to holders of its debt.

Loss-absorbing debt is used by financial companies to protect themselves against a potential market downturn. Under certain circumstances, the debtholders would incur losses, thereby easing the burden on the issuer.

Nationwide, which hopes to bolster its capital position, could raise between 300 million and 500 million pounds (S$570-950 million) through the issue of so-called core capital deferred shares (CCDS), though a source close to the building society said the size and timing of the issue had not yet been finalised.

Chief Executive Graham Beale said in an interview on the Financial Times website that Nationwide had been working on creating the new instrument as an alternative to permanent interest-bearing shares (Pibs), which are no longer regarded as core Tier 1 capital - a measure of financial strength favoured by regulators.

"We've been working with the regulators to design a new instrument and we've come up with something called core capital deferred shares or CCDS," Chief Executive Beale said. "It's not been issued yet but will ultimately replace Pibs so that organisations can top up capital or respond to needs for additional capital by using that new instrument."

The capital position of mutuals has been brought into focus by difficulties at the Co-operative Bank, which is facing a capital shortfall that some analysts say could be as large as 1.8 billion pounds.

Credit agency Moody's downgraded Co-op's debt ratings earlier in May, prompting the departure of the bank's chief executive, Barry Tootell.

Chief Executive Beale said Nationwide planned to issue the debt in the near future.

"I would say within the next 12 months is a realistic timeframe, nothing big, it's just really an issue to prove that there is an appetite," he said.