Still on rocks, but bank shows 'significant improvement'

Published on Wednesday 4 November 2009 20:20

NATIONALISED lender Northern Rock yesterday said trading in the second half of the year would show a "significant improvement" compared to the first half as the effects of bad loans slowed.

Despite "encouraging" performance in the third quarter, however, the bank confirmed it would still make a loss this year and warned that its wider outlook for the economy "remained subdued".

The bank made a loss of 740m in the first half of 2009.

Gary Hoffman, Northern Rock's chief executive, said that yesterday's results "demonstrate good progress".

Last week European officials approved the split of the business into a "good" and "bad" bank – with the healthy parts of the Rock to be sold back to the private sector.

The Newcastle-based Rock said improved performance came from higher net interest income and slowing loan loss impairment. Gross mortgage lending during the quarter accelerated to 1 billion, taking loans over the nine months to the end of September to 2.3bn.

The group also reported a 600m increase in its savings balances in the quarter to 19bn, despite its "self-imposed competitive framework" capping deposits at 20bn until 2011.

The bank said mortgage arrears slowed in the quarter as the number of delinquent payments less than three months old improved. But arrears over three months still increased – to 4.11 per cent from 3.92 per cent – in the third quarter.

Last week, the European Union approved the British government's plan to split Northern Rock into two units. The "good bank", Northern Rock Plc, will include the bank's retail and wholesale deposits and the branch network, while the "bad bank", Northern Rock Asset Management, will hold the bulk of the bank's existing mortgages and unsecured loans and which is closed to new lending.

As part of the deal, British taxpayers will put an extra 8bn into the bad bank.

The break up of Northern Rock is expected to be complete by the end of the year. Potential buyers of the good bank could include Sir Richard Branson's Virgin Money.

Northern Rock said it still owed the government 14.5bn.