Yorkshire Bank sees tough UK market

The bank's parent company National Australia Bank said its UK arm has benefited from lower bad debt charges and an easing in funding costs.

But the group, which also owns Clydesdale Bank, said the proportion of its loans in arrears had deteriorated due to weakness in the commercial property portfolio.

Group chief executive Cameron Clyne said: "Our United Kingdom franchise remains well positioned to benefit from any improvement in operating conditions.

"We will continue to monitor market developments in the UK."

The bank is among several foreign players thought to be considering bids for UK banking assets as a result of a Government shake up of the country's financial system to introduce more competition.

Speculation has linked NAB with potential offers for the so-called "good" part of recently split Northern Rock, as well as branches to be sold off by Royal Bank of Scotland and Lloyds Banking Group to appease European competition authorities.

Mr Clyne said the business as a whole had delivered a "sound result" in the three months to December.

NAB said earnings for the first quarter were approximately 635m, an increase of more than 20 per cent on the last three months of the previous financial year.

"Bad and doubtful debt charges have fallen and are not expected to return to the peak experienced in the third quarter of the 2009 financial year," said Mr Clyne.

"However, given the fragile global recovery and uncertain regulatory environment, a conservative approach to capital and liquidity management remains appropriate."