UK government-owned bank Northern Rock plans to repay almost £7 billion to the Bank of England this year and should fully repay its loan in the next three years even if there is a recession, it said.
Northern Rock, which was taken into state ownership in February after a funding crisis brought it close to collapse, said today it had stress-tested its model against a housing slump and economic recession comparable to the early 1990s.
"Even under that recession scenario, the loan was repaid with only a short delay," said Ann Godbehere, chief financial officer. "The delay would only be about a six month delay in that scenario," she said.
Ron Sandler, executive chairman, told politicians at a Treasury Select Committee hearing that Northern Rock would return to profit and go back into the private sector as a leaner bank with a balance sheet shrunk to about £50 billion.
"2011 is when we believe the bank will get back to breakeven and will move into profit in the years that follow," he said.
Northern Rock's loan from the Bank of England stood at £26.9 billion at the start of the year and was down to £24.1 billion at the end of March and more had been repaid since, Godbehere said.
At least 25 per cent of the loan should be repaid by the end of this year, and 75 per cent should be paid back by the end of 2009 and the remainder in 2010, she said.