The future direction of National Irish Bank (NIB) and Northern Bank was unclear last night, as market sources claimed that Halifax Bank of Scotland (HBOS) had lost interest in buying the two banks, write Una McCaffrey and Siobhán Creaton.

The expected exit of HBOS from the sale process is said to hinge on the price the Scottish group would be prepared to pay for the two banks, which have been put up for sale by National Australia Bank.

"Nothing stood in the way of a deal except price," said one informed commentator last night. "NAB was holding out for too much."

A decision by HBOS to walk away from the process will come as a blow to NAB, where executives have displayed little appetite to retain ownership of NIB and Northern.

The Sydney-based group has performed poorly of late and would benefit from the injection of cash that offloading its Irish assets would bring.

The funds would probably have been invested in NAB's British assets, Clydesdale and Yorkshire.

Collective earnings for all of the group's European banks fell back by 33 per cent last year.

Estimates for buying NIB and Northern as a package range between €1.2 and €1.5 billion.

It emerged a week ago that NAB had received no formal bids for the two banks, even though three potential buyers - HBOS, Lloyds TSB and Rabobank - had been expected to make an offer.

Rabobank is thought to have moved away before making an indicative bid because it had little interest in entering the banking market in the North through buying Northern.

Lloyds is believed to have made an indicative expression of interest before also departing the scene.

HBOS, which has been seen as the favourite to buy NIB and Northern, was expected to stick with the process and its exit would come as a surprise to the market.

HBOS owns Bank of Scotland (Ireland) and has long signalled its desire to grow in the Irish market.

It remains to be seen whether the bank's latest move is a strategic attempt to drive down the price.

The bank is expected to formally clarify shortly that it has withdrawn from the current bidding process.

Meanwhile, an NAB spokesman yesterday poured cold water on a weekend report that NAB would close up to 40 Irish branches if it failed to find a buyer for the banks.

The newspaper said Northern would bear the brunt of the closures.

The NAB spokesman dismissed the claim as "unsubstantiated rumour".