State-owned lender Northern Rock is on track to meet its financial targets, with its financial position improving further in the last three months of the year, and the group set to complete its restructuring by year end, it said today.

The bank, now headed up by chief executive Gary Hoffman, said it had seen net interest income increase in the third quarter, with impairments improving and cost controls also having a positive impact.

The company said early arrears trends, covering people less than three months behind on repayments, had continued to improve, while the increase in more long term arrears has also slowed.

Northern Rock said residential arrears over three months to the end of September now accounted for 4.11% of the loan book, up from 3.92% at end of June. This was an improvement on the previous increase, when arrears climbed from 3.67% to 3.92%.

Meanwhile, debt levels have remained static in the wake of the announcement by the group of its new restructuring plan.

Northern Rock said last week that it had received approval from Europe to restructure into two banks, labelled the good and bad banks.

One group, to be called Northern Rock, will act as a new savings and mortgage bank that will hold and service all customer savings accounts and some existing mortgage accounts. It will also offer new mortgage lending as part of the Government's drive to increase mortgage supply and create a competitive market.

The other entity - Northern Rock (Asset Management) - will hold the remaining residential mortgage book and will attempt to wind down the existing loans.