Competition issues have emerged as a major barrier to Bank of Ireland's interest in Northern Bank, to be put up for sale shortly by its parent, National Australia Bank.

The dominating position of the combined operations of Northern and Bank of Ireland's existing business in the North - particularly in business banking - could fall foul of the UK competition regulator.

Bank of Ireland has refused to make any comment on the situation. However, it is now likely that it will not actively pursue Northern Bank because any deal could be derailed for competition reasons. Bank of Ireland is believed to have had preliminary discussions with Irish Life & Permanent about a joint bid which would have seen it taking control of Northern Bank, while IL&P took over National Irish Bank in the Republic.

However, these contacts are not believed to have borne fruit. Sources believe that National Australia Bank will look for a quick sale of NIB and Northern Bank as a unit, putting HBOS - owner of Bank of Scotland (Ireland) - in favourite position as it would not face any competition barriers.