FIRST National Building Society has agreed to purchase the sole Northern Ireland branch of Cheltenham & Gloucester (C&G).

The consideration has not been disclosed, but Mr John Smyth, group managing director, said the cost to the society was modest to acquire the mortgage assets of £70 million sterling. The premium paid representing the cost to the society of taking the £70 million in new mortgages on to its book, is thought to be between £1 million and £2 million.

First National entered the Northern Ireland market in 1993. It has one branch in Belfast which has a mortgage book of around £30 million. The acquisition will treble the size of its Northern Ireland operations and "strategically improves its presence", the society said.

Following the acquisition, First National will have between 7 and 8 per cent of Northern Ireland's new mortgage housing advances, said Mr Tom Shinkwin, assistant general manager. It is now looking at ways to expand its business further in Northern Ireland.

Mr Smyth noted the group's strategy is to "develop critical mass in the UK, as well as in Ireland" and the acquisition will "give us enhanced critical mass in Northern Ireland". The quality of C&G's loan books is "top class" and arrears are almost "non existent".

Asked about the size of the consideration, he stressed it was "extremely keen", noting that premiums paid on assets in Britain vary from 1.5 per cent to 6 per cent, and the society is paying at the lower end of that range.

The acquisition is expected to be completed by December 31st. It will be financed from internal sources and will have a "negligible impact" on its liquidity and capital adequacy ratios, he added.

C&G entered the Northern Ireland market in 1966. The branch is located in Chichester Street, on the corner of Donegall Square East, and is said to be profitable. It employs six people. C&G is understood to have agreed to the sale because it saw little future for a single branch.

The name of the C&G branch will be changed to First National. Asked about the impact on C&G's existing business in Northern Ireland, following the acquisition and considering the political uncertainty, Mr Shinkwin said his group was taking a positive view, noting that the mortgage books of both First National and C&G's branch are broadly spread between the different "socio divides".

When the acquisition complete, the two businesses will be integrated. C&G's branch manager, Mr Alistair Kennedy, will be appointed First National manager of the enlarged Northern Ireland group. Also, the C&G's employees will be offered continued employment with First National. The full range of First National's products will be available from January 1st.

First National started with a representative office in Northern Ireland and followed this with a new branch in Donegall Square South, Belfast. It then grew its distribution network through the use of intermediaries. It now has 16 agents.

Last week Moodys, the international rating agency, downgraded First National's long term bank deposit rating by one point from A2 to A3, its short term deposit rating from Prime-1 to Prime-2 and its financial strength rating from C+ to C, following its acquisition of the Mortgage Corporation, for £51 million, in Britain.

The lower credit rating arose because of Moody's concern that a much higher proportion of its mortgage book was now outside its core Irish market. Also, Moody's views the British market as highly competitive and over supplied. And Moody's wondered what First National would be able to do with The Mortgage Corporation which has not been an active lender since 1993 and had asset quality problems before that.

First National has rejected Moody's conclusions, saying it is confident that it will extract good profits out of the British mortgage business.