National Australia Bank (NAB) has received no formal bids for National Irish Bank (NIB) and Northern Bank, it emerged yesterday.

News of firm bids had been expected before NAB issued its full-year results late last night. NAB had asked for indicative bids to be lodged by last weekend.

London market sources said, however, that none of the three parties that had an interest in buying the two banks - Halifax Bank of Scotland (HBOS), Lloyds TSB and Rabobank - was prepared to make a solid offer at this stage.

Potential buyers are believed to have retreated on concerns over NIB and Northern's recent trading performance.

Some interested parties also raised questions on the extent of investment that the two banks' information technology systems would require.

The banks' systems are currently linked to those of their sister banks in the UK, Yorkshire and Clydesdale.

NAB said in full-year results reported last night that its European operations had posted a 32.9 per cent decline in earnings for 2004, with retail banking among the factors blamed for the drop.

The group does not break out figures for its individual assets.

Overall, group net profits fell 20 per cent to 3.2 billion Australian dollars (€1.87 billion).

The bank did not comment on the sale of NIB and Northern, aside from saying a process was ongoing.

Rabobank, which NAB had expected to be among the bidders for its Irish assets, is thought to have exited the sale process before making an indicative bid because it had limited interest in gaining exposure to the banking market in the North through Northern.

Lloyds is thought to have withdrawn an indicative expression of interest over the weekend.

HBOS, the only remaining interested party, has not made any formal bid and has not signalled its intentions.

The Scottish bank has long been viewed as the front-runner to take over NIB and Northern and a move away from the process at this stage would surprise most market watchers.

Analysts have estimated that NIB's network of 59 branches in the Republic could be worth between €300 and €400 million, while Northern's 95 branches could fetch €1.3 billion. Estimates for buying the two as a package range between €1.2 and €1.5 billion, with NAB expected to invest any proceeds in the development of its remaining UK assets.

It is unclear, however, how the price tag NAB could attach to the banks will be affected by the latest development.

NAB chief executive Mr John Stewart said last month that NIB and Northern would not be sold if they could not attract the right price. "If we do not receive an offer that reflects the true value and potential of the Irish businesses, we will continue to invest in them and to grow them organically," Mr Stewart said.

He described the two banks as "excellent businesses" that had "great potential".

NAB is being advised on its options for the NIB and Northern by Lazard in London.

NAB is known to favour selling the banks as a package rather than individually. This approach would have ruled out a number of trade players that may have been interested in one bank or the other but not both.

Irish Life & Permanent, for example, said it was interested in acquiring NIB but not Northern.

The performance revealed in yesterday's results compares poorly with that of other large Australian banks that have reported of late, with NAB the only one to suffer a fall in profits.