Northern Rock sets out its plans to separate into two different banks by the second half of 2009.

The publicly-owned bank Northern Rock has announced that it will be split into two later this year, nearly two years after it was rescued from collapse.

The split, proposed in its Q1 trading statement in April, will see Northern Rock break up into two entities. The first, “BankCo”, is set to hold the savings facility, and will also carry out new lending, along with a proportion of Northern Rock’s current mortgage portfolio and its high street branches.

The second, known as “AssetCo”, will hold the remainder of the mortgage portfolio and will be responsible for repaying the outstanding government loan.

The split is part of a wider business plan, which has been given to the European Commission, and includes a boost to UK lending, as the bank has promised to lend £14 billion over the next two years, including up to £5bn in 2009.

In its latest statement, which is an update on the State Aid approval process issued today (29 June) Chief Executive, Gary Hoffman, said: “We are confident that our plan offers the best way forward, meets all State Aid requirements and offers significant benefit for consumers and value for taxpayers as we position Northern Rock for a return to private ownership.”

Under European State Aid rules, the package will need to be approved by the European Commission, which has asked for further information from the UK government. Northern Rock will continue to work closely with the government to answer any impending questions.