EU to back split of Britain's Northern Rock: reports

State rescued Royal Bank of Scotland and Lloyds Banking Group will also be partially sold off in coming years in British government-backed plans to create more competition in the market, according to the Independent.

"We are keen to see greater competition in the banking sector as soon as possible," an unnamed British government source was quoted by the paper as saying.

The three British banks received huge government bailouts at the height of the global economic crisis. Authorities are concerned about state-backed banks having a stranglehold on the market.

EU Competition Commissioner Neelie Kroes is set to approve the split of Northern Rock into a "good" profitable section with no debt and a "bad" bank which will remain in state hands for the time being.

A sale of Northern Rock's "good" assets as early as next year will be handled by UK Financial Investments which manages government holdings in British banks, the Daily Telegraph said.

Virgin Money and National Australia Bank, owner of Clydesdale and Yorkshire banks, were named in media reports Wednesday as possible buyers.

Northern Rock, once Britain's fifth-biggest home loan provider, faced potential collapse in September 2007 as banks tightened lending criteria amid uncertainty over exposure to the collapsed US subprime home loan sector.

The troubled group was forced to request emergency funding from the Bank of England -- which sparked the first run on a British bank for more than a century.

The bank had vowed earlier this year to boost lending to struggling homebuyers over the next two years in recession-hit Britain.

Lloyds is expected to face a forced reduction in its share of the retail banking market from 30 per cent to 25 per cent, with the disposal of more than a seventh of its 3,000 branches, according to the Independent.

Lloyds, which is 43-percent owned by the taxpayer, has reportedly been trying to raise capital to keep it out of the government's insurance scheme for toxic assets.

RBS, which is 70 percent owned by the taxpayer after it was saved from collapse by a government bailout last year, is working on plans to sell off several hundred branches, the newspaper said.

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