Rock doubles bad debt charges

MORTGAGE bank Northern Rock has just topped City forecasts for full-year profits - but more than doubled the money it has set aside to cover bad debts as the economy slows.

Kicking off the banking sector results season, Northern posted profits ahead 18% to £295.2m before tax for the year ended December. The bank said it had gained from new business and trends such as remortgaging, despite intense competition in the mortgage market.

Analysts had been forecasting profits of around £292m. Total income climbed to £495.1m from £414.2m, and the group set a total dividend of 17.1p a share, from 15.5p in 2000.

But bad debt charges soared to £34.5m from £16.9m a year earlier. Northern cited the slowdown, its growth in lending and a more prudent approach to its lending book. The charge represented just 0.18% of mean advances, and mirrored a rise in its balances rather than a deterioration in credit quality.

Investors sold the stock anyway, knocking it down more than 3% in opening trade although it recovered to 661 1/2p, off 9 1/2p.

Gross lending soared 39% to £8.9bn and net advances jumped 42% to £5.1bn. Northern had around 7.1% of the mortgage market and its arrears from this source were around half the industry average.

Northern was upbeat about 2002 although economic growth was expected to slow. It ended the year with £2.6bn of mortgages in the pipeline, a third higher than in the year-earlier period.

'The mortgage market is sufficiently larger to enable us to achieve our strategic target levels of lending without compromising quality especially as we believe that remortgaging will be an increased proportion of the mortgage market in the coming year,' Northern added.