Northern Rock eyes return to profit in 2012

Nationalised lender Northern Rock has seen losses narrow in the first six months of the year ahead of an expected return to profit in 2012.

Its pre-tax loss of £68.5m in the six months to 30 June was an improvement on the same period last year, when the Rock lost £142.6m.

Ron Sandler, executive chairman of Northern Rock, said the bank was generating momentum and expected to return to profitability next year.

"The company continued to be loss-making, as expected, but losses are significantly reduced and we are generating momentum," he said.

"The company expects to begin trading profitably during the second half of 2012."

However Sandler added the trading environment remains challenging for a small, predominantly retail funded bank like Northern Rock, with low interest rates also not helping the situation.

Total income reached £40.6m in the first half of the year, compared with £38.5m in 2010 H1. This included net interest income of £29.8m, compared with negative net interest income of £48.4m in the first half of 2010.

According to the bank, this growth in net interest income reflected growth in the mortgage book, improvement in funding margins, higher returns on liquid assets and reduced retail deposit guaranteed fees.

Sandler added that the company is still exploring options to sell Northern Rock's "good bank" arm at the best time for taxpayers.

Northern Rock was fully nationalised three years ago after a near collapse during the credit crunch. The government rescued the bank with a £1.4bn payout from taxpayers.

After its near collapse Northern Rock was split into a "good bank" comprising new mortgages and savings and a "bad bank" holding its toxic assets.

The "good bank" will be sold as the government continues to wind down and run off the toxic assets of the "bad bank".