A Northern Rock bank branch sign is seen in central London November 19, 2007. - File

Nationalised British bank Northern Rock on Tuesday reported a net loss of £592 million (US$1.2 billion) in the first half of the year, as mortgage customers failed to make timely repayments.

Last year, the then-publicly listed company made a profit in the January to June period of £208 million.

Northern Rock's earnings plummeted from £520 million in the first six months of 2007 to a loss of £39 million (US$76 million) for the first half of this year.

The lender said that the number of mortgage borrowers falling into arrears on their home loans had doubled over the last six months to 1.18 per cent of all loans, forcing the bank to repossess 1,495 properties since January.

Silver lining

The only silver lining to the earnings report was that the bank said it had succeeded in paying back £9.4 billion (US$18.4 billion) worth of its £26.9 billion (US$52.7 billion) loan from the Bank of England, faster than expected.

Northern Rock said it was on target to repay its Bank of England loans by the end of 2010, as agreed under a salvage plan earlier this year.

The mortgage lender, which was nationalised in February after suffering Britain's first bank run in more than a century, is struggling to get back on its feet. Last month, it announced plans to lay off 1,300 staff as part of a restructuring plan.

"While the losses reported today are likely to continue as the restructuring proceeds and as the credit environment remains difficult, I am confident that the foundations have been well laid for recovery and return in due course to private ownership," said Northern Rock executive chairman Ron Sandler.

Northern Rock was bailed out with public funds after it was crippled by last August's freeze in money markets, where it had borrowed most of its cash for lending after years of rapid growth.

The highest-profile British victim of the global credit squeeze, it had offered some of the country's most generous mortgage deals, advancing loans worth as much as 125 per cent of home values.

Treasury chief Alistair Darling said Tuesday that the government had agreed to write off a further £3 billion (US$5.9 billion) of Northern Rock's outstanding debt in order to strengthen the floundering bank's balance sheet.

The government plans to recoup some, if not all, of that money by charging a higher interest rate for the remaining loans.

Darling defended the taxpayer-funded bailout of the struggling bank.

Substantial risk

"If we had not intervened to save Northern Rock last September, there was a very substantial risk ... that it wouldn't just have been Northern Rock," Darling told British Broadcasting Corp radio. "Other banks might have gone under as well."

But the European Commission is not convinced that the British government did the right thing.

It is currently investigating whether the bailout breached EU laws regarding illegal state aid.

The British government's announcement Tuesday set off even more alarm bells in Brussels. The commission said it will be taking the new £3 billion (US$5.9 billion) debt conversion "into account" in its investigation.