Belgian bank KBC, which owns Irish Intercontinental Bank and Irish Life Homeloans, is buying the Czech state's 66 per cent stake in Ceskoslovenska Obchodni Banka (CSOB), its fourth biggest bank, for #1.06 billion.

Foreign investors have long wanted to see evidence that the Czech Social Democrat government was serious about privatisation, particularly of the large state banks which have been blamed for hindering corporate restructuring by granting easy credits.

The CSOB sale is the government's first significant privatisation since it took office last July. It comes ahead of the planned sales next year of Komercni Banka and Ceska Sporitelna, the two biggest and most troubled banks.

After debating the recommendation by Schroders, the advisers, for a month, the Czech cabinet yesterday chose KBC ahead of Deutsche Bank and HypoVereinsbank of Germany.

Deutsche Bank is believed to have offered almost the same price as KBC and will be kept in contention until negotiations with KBC are concluded.