Northern Rock sees H2 improvement

LONDON (Reuters) - State-owned lender Northern Rock said it saw an improved trading performance in the third quarter, with encouraging trends on bad loans, and said it expected a "significant improvement" in the second half.

But Northern Rock warned on Wednesday that conditions in the mortgage and housing markets remained subdued.

"While recent trends have been encouraging, loan loss impairment is expected to remain a driver of the company remaining loss making for the full year, as previously announced," Northern Rock said in a statement.

The lender said its financial performance during the third quarter improved on an underlying and statutory basis, reflecting higher net interest income and lower loan loss impairment. Gross mortgage lending during the quarter accelerated to one billion pounds, taking loans over the nine months to the end of September to 2.3 billion.

Northern Rock won clearance from European regulators earlier this week to be split in two, appeasing EU competition worries over state aid and paving the way for a sale of the bank.

The split will divide the bank into a new savings and mortgage bank, Northern Rock Plc, and Northern Rock Asset Management, which will hold existing mortgages and unsecured loans and is closed to new lending.

(Reporting by Clara Ferreira-Marques)