Halifax Bank of Scotland (HBOS) is thought to have moved into poll position in the contest to acquire National Irish Bank (NIB) and Northern Bank.

The development comes as interest from other potential buyers of National Australia Bank's (NAB) Irish assets is believed to have cooled.

HBOS is one of three banks that have been linked with the possible purchase of NIB and Northern over recent weeks, with Lloyds TSB and Rabobank also thought to have expressed an interest in the assets.

Rabobank is known at this stage to have dropped out of the race, in part because it had limited interest in Northern Bank, which operates exclusively in the North.

Rabobank's expansion strategy has focused on the Republic, where it owns ACCBank and is in discussions with EBS about a joint venture.

Lloyds TSB, which has no presence in Ireland at the moment, is also thought to be losing interest in bidding for the assets.

NAB had asked interested parties to make indicative bids for the two banks by last Friday. The bank was then to select an exclusive bidder and allow this party to begin due diligence enquiries.

It is believed that HBOS is now most likely to be chosen as this exclusive bidder. The Sunday Business Post reported at the weekend that HBOS had delayed its indicative bid because of technical difficulties, but NAB would be unlikely to view this as a deal-breaker.

NAB is expected to provide an update on the sale process when it reports results overnight (tonight Irish time). It is possible that an exclusive bidder will be identified at this stage.

None of the parties involved was inclined to comment on the process yesterday.

It is unclear at this stage how the cooling of interest in NIB and Northern will affect the price tag that NAB will attach to them.

Analysts have estimated that Northern, with 95 branches, could fetch €1.3 billion to €1.5 billion, while NIB's network of 59 branches in the Republic could be worth €300 to €400 million.