Mortgage bank Northern Rock, nationalised in February, said it gathered more savings in the first quarter and reported modest mortgage lending, though arrears were up and the UK outlook remains "highly uncertain".
Britain's biggest casualty of the credit crisis, brought into public ownership after months of turmoil, has said it plans to halve its assets - or home loans - by 2011, moving back from its once cutting-edge position in the UK mortgage market, and to boost savings in order to diversify funding sources.
The bank said in a trading update this morning that the turnaround plan was on track, despite market turbulence.
Northern Rock, Britain's fifth-largest mortgage lender, said retail savings balances ended the quarter at £12.8 billion, while gross residential mortgage lending in the first quarter was £1.2 billion ($2.3 billion).
Arrears, however, rose, hit by worsening economic and market conditions and a shrinking mortgage book, with mortgages three months and over in arrears totalling 0.95 per cent at the end of April against 0.57 per cent at the end of December.
The overall credit quality of the loan book, however, was in line with its expectations.
"While recent actions taken by central banks to improve the functioning of financial markets are welcomed by Northern Rock, the outlook for the UK mortgage industry remains highly uncertain.
The company does not expect market conditions to normalise in the short term," it said a statement.
"This environment presents Northern Rock with challenges, especially as regards the company's ability to meet its targeted mortgage redemption levels in the future. Nevertheless, given this backdrop, the company's progress against its plan to date is
encouraging."
The bank also confirmed plans to reduce staff numbers by 2,000 by the end of 2011, with the bulk of the reduction in 2008.