Britain will inject billions of pounds into state-owned Northern Rock bank to try to unlock lending and help the economy emerge from recession, finance minister Alistair Darling said today.
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 sterling 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 since the onset of the global credit crunch 18 months ago.
The shortage of bank finance has triggered a 20% slump in British house prices over the past year, and contributed to a 1.5% contraction in the country's economy in the last three months of 2008.
Northern Rock today 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% of the total loan book at the end of 2008, up from 1.87% three months earlier, the bank said.
'2008 was an extremely difficult year for the company, as expected,' Northern Rock's CEO Gary Hoffman said.
However, the Newcastle-based lender said its efforts to repay a £25 billion emergency government loan were ahead of target, with the outstanding sum falling to £8.9 billion at the end of 2008 from £18 billion at the beginning of the year.
Northern Rock was forced to seek emergency funding from the Bank of England in September 2007 as the credit crunch left it unable to fund itself through wholesale borrowing.
Darling said the new government-funded lending programme would help accelerate economic growth once the downturn is over. '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 said.
'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,' he added.
