BRITAIN WILL inject billions of pounds into state-owned Northern Rock bank to try to unlock lending and help the economy emerge from recession, UK chancellor Alistair Darling said yesterday.
Northern Rock, which largely withdrew from the mortgage market before being nationalised in February last year, is to increase lending by up to £14 billion (€16 billion) over the next two years, the bank confirmed in a statement.
The move forms part of a government effort to revitalise the economy by stimulating bank lending, heavily curtailed by the global credit crunch.
The part-nationalised Royal Bank of Scotland (RBS) is also said to be in talks with the government.
RBS, due to report results on Thursday, is expected to announce a restructuring this week.
Northern Rock’s £14 billion lending commitment compares with total gross UK mortgage lending of £258 billion last year, down from £364 billion in 2007, according to the UK Council of Mortgage Lenders.
“The swing round of Northern Rock from deliberate contraction to being active once more could be helpful to the margin of supply,” said Derek Chambers, an analyst at Standard Poor’s Equity Research.
The shortage of bank finance has triggered a 20 per cent slump in British house prices over the past year, and contributed to a 1.5 per cent contraction in the country’s economy in the last three months of 2008.
Northern Rock yesterday underlined the severity of the downturn, saying it expected to report a loss of £1.4 billion for 2008 as a result of a sharp rise in bad debts.
Accounts more than three months in arrears represented 2.92 per cent of the total loan book at the end of 2008, up from 1.87 per cent three months earlier, the bank said.
“2008 was an extremely difficult year for the company, as expected,” Northern Rock chief executive Gary Hoffman said in a statement.
However, the Newcastle-based lender said its efforts to repay a government loan of about £25 billion were ahead of target, with the outstanding sum falling to £8.9 billion by the end of 2008.
Northern Rock was forced to seek emergency finance in September 2007 as the credit squeeze paralysed wholesale money markets, a major source of its funding.
Mr Darling said the new government-funded lending would help accelerate economic growth once the downturn ended.
“It is best to look at this as one of a series of measures we are taking to try and rebuild the banking system for the future,” he told BBC radio.
“I want to ensure that when we come to the recovery phase, the money is there for businesses, the money is there for people who want to buy homes.” – (Reuters)
