Northern Rock To Repay GBP27 Billion Loan By 2011

Wed, 21 May 2008

Northern Rock has pledged to pay back the £26.9bn loan borrowed from UK taxpayers by the end of 2010 and post a profit in 2011.

The government-owned lender yesterday announced that around £7bn of the Bank of England loan will be paid by the end of 2008, in addition to the £2.8bn that has been handed back since December.

Chief financial officer Ann Godbehere told a Treasury Select Committee that the loan would be repaid even if the housing market was to suffer a recession similar to that of the early nineties.

"At worst, the repayment timetable would be delayed by six months", she added.

But Ron Sandler, executive chairman at Northern Rock, warned the Treasury Select Committee that the bank's recovery plan was "challenging in very many respects".

"If we were to suffer a significant downturn in this economy, and if that were to lead to levels of unemployment which are significantly higher than those at present I can see that that would place considerable strain on the ability of the company to deliver the plan," Mr Sandler said.

However, he went on to assure MPs that his plan for Northern Rock had been "stress tested" against problems in the housing market such as those seen in Britain nearly 15 years ago and added that, as things currently stand, Northern Rock will be able to repay the £26.9bn loan by the end of 2010.

The Newcastle-based bank was nationalised back in February after it was forced to seek emergency funds as it struggled to finance its business model due to the impact of the credit crunch.
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