Northern Rock has made a £585m loss in the first six months of 2008 following a sharp rise in arrears.
The nationalised bank will also raise £3bn from the Government to bolster its finances.
However, the bank has already made significant progress in repaying its loans from the Bank of England, with over a third of the balance now paid.
The bank says it expect to make a significant loss throughout 2008 as part of its business plan, which involved paying down taxpayer loans and making many staff redundant.
Northern Rock has succeeded in strengthening its retail deposits following the bank run it experienced in summer 2007, which damaged the banks funding base.
At the end of June 2007, prior to the bank run, Northern Rock had deposits of £24.4bn, but this fell to just £10.5bn by the end of 2007, shortly before the bank was nationalised. The most recent figures show deposit levels have improved, partially due to a Treasury guarantee, to £14.2bn.
The bank has suffered from a sharp rise in arrears and repossessions and residential loans in arrears rose from 0.28% to 1.18% in the first six months of the year. Repossessions have increased by 67% from 2,215 to 3,710.
Northern Rock was one of several lenders to offer 125% mortgages, which have received criticism for plunging customers into debt the could not repay and have all now been withdrawn. Arrears among customer with 125% deals have risen to 2.14%, well above the average.
However, despite its problems, the bank has repaid a significant chunk of the loan it received from the Bank of England, which led to its demise.
The amount owed has been reduced by £9.4bn to £17.5bn and is currently ahead of the repayment schedule set out in the bank’s business plan.
However, repayments are to be suspended in the second half of 2008 to allow Northern Rock to raise £3bn to shore up its financial position, in a similar manner to the rights issues other banks have initiated to get access to extra funds.
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