National Irish Bank and Northern Bank could be sold if National Australia Bank joins merger talks between Abbey National and Bank of Scotland.

Speculation that Australia's biggest bank is preparing to become part of a merged Abbey National and Bank of Scotland has intensified in recent days on the back of reports that its advisers are looking at how it could achieve a strategic interest in the enlarged entity.

Merrill Lynch and Lazards are examining how this could be achieved, a move that might require the sale of its existing UK and Irish businesses. A spokesman for NIB refused to comment on the speculation yesterday.

The advisers are seeing whether these assets could be combined within a merged Abbey National and Bank of Scotland in return for a strategic stake of around 15 per cent. Alternatively NAB could do a bilateral deal with either bank, if the current merger talks between Abbey National and Bank of Scotland break down.

NAB owns the Clydesdale, Yorkshire and Northern Banks in the UK but is still a relatively small player in that market. Analysts believe it needs to make a strategic move or face the prospect of being marginalised as a middle-sized player.

Last week, the bank announced the merger of the Clydesdale and Yorkshire banks. Industry sources suggest a sale of the Irish operations is unlikely to happen immediately and will have to await the outcome of ongoing investigations being carried out at the bank. Any prospective buyer would be unable to complete a due diligence examination until the extent of its tax liabilities had been established.