National Australia Bank, the parent of National Irish Bank, and Belgium's KBC Bank, which owns Irish Intercontinental (IIB), may not feature among the bidders for Ulster Bank, informed sources say.

Acquiring either the Northern or Southern operations of the bank is not believed to a top priority for KBC at present.

NAB, which owns Northern Bank in Northern Ireland, is likely to run into competition problems if it were to bid for Ulster's Northern operations. It is understood not to be looking at the business in the Republic - where it owns National Irish Bank - for now. However, the leading Irish financial institutions are expected to look at Ulster, which is due to be sold or floated on the stock market by its embattled parent, National Westminster Bank. It is understood that NatWest has set an early deadline of the middle of November for receipt of indicative bids.

Irish Life & Permanent, whose managing director, Mr David Went, is a former Ulster Bank chief executive, has already confirmed its interest in Ulster and has appointed corporate finance advisers Schroeders and DLJ Phoenix to advise it.

It is understood the group is particularly interested in Ulster Bank's operations in the Republic, which would significantly boost its presence in the retail banking market here. If NatWest insists on selling Ulster as a single operation, Irish Life & Permanent would also be open to considering the Northern operations as well.

By contrast, Bank of Ireland is believed to be more interested in Ulster's operations in Northern Ireland, which would add significantly to its market share in the region. It currently trails behind Ulster, Northern Bank and AIB subsidiary First Trust Bank in terms of its share in the North.

Banking sources also suggest that AIB should not be ruled out as a possible bidder despite the belief in some quarters that its market share in the Republic could lead to competition problems when added to Ulster's business.

Industry sources point out that the bank could argue that its operations in the Republic now face competition from financial services companies across the euro zone and it could make a case that this, rather than just the Irish market, represents the playing field.

An AIB spokesman declined to say whether the bank was interested in bidding for Ulster. However, the State's largest bank is on the record in the past as saying it is interested in growing all its business in core markets through acquisitions as well as by growing existing operations.

Aside from the Irish institutions, a number of overseas banks keen to establish a foothold in the Irish market may also decide to take a look at Ulster, which is expected to fetch a price of between £2 billion (€2.54 billion) and £2.5 billion.

Ulster - which generated pretax profits of £155 million sterling (€242 million) for 1998 and has been a strong contributor to NatWest's coffers - is being disposed of as part of a defensive move by its British parent to ward off a hostile takeover bid from Bank of Scotland.

NatWest has begun preparations to list Ulster as a separate company on the London Stock Exchange but also plans to conduct formal discussions with buyers who have expressed an interest in its Irish subsidiary.

It has said its aim is to secure the best return for shareholders. However, it is widely thought that Ulster is more likely to be sold than floated as investors are unlikely to have much appetite for yet another Irish financial stock, particularly with the proposed TSB/ACC float on the horizon.