Government body UK Financial Investments (UKFI) - which oversees state stakes in public-owned lenders - is believed to have chosen Deutsche Bank ahead of two rivals including US banking giant Morgan Stanley.
"There is no presumption at this stage that any particular option will be pursued and no timeframe has yet been set for the return of the company to private ownership," UKFI commented in a recent statement.
Northern Rock chief executive Ron Sandler insisted earlier in the week that the company remained on track for privatization, despite posting an annual loss of Â£223.4 million ($358.4 million) for 2010.
Last month, the bank revealed that it was to once more offer 90 per cent mortgages to UK customers, despite being hit by major criticism for perceived reckless lending following its near-collapse in 2007.
By Claire Archer