THE owner of the Yorkshire and Clydesdale banks said it was merging and expanding them as part of a bid to revive its lacklustre UK operations.

National Australia Bank (NAB) has turned Yorkshire and Clydesdale into one legal entity and had opened 12 branches in the South-East.

The move is part of an overhaul of NAB's operations following a review of its UK activities.

There had been speculation that NAB was planning to leave the UK because it had too small a presence to compete in the British market.

The bank, which has nearly 30 Yorkshire Bank branches across the North-East and North Yorkshire, with a high concentration on Teesside, said UK earnings this year would be lower.

But it said it had decided to stay in the UK because it was an attractive market with a positive outlook.

Group chief executive John Stewart said: "The UK is big enough for smaller banks to compete profitably in niche markets.

''It is three-times the size of the Australian banking market and offers growth opportunities not available to our Australian competitors."

NAB said it had sold its Irish banks, which included the National Irish Bank in Eire and Northern Bank in Ulster, to focus on its mainland UK operations.

The Northern Bank's headquarters in Belfast was the victim last month of the £26.5m robbery which the UK and Irish Governments have since blamed on the IRA.

NAB bought Scottish bank Clydesdale in 1987 and Yorkshire Bank in 1990.

It said the merger between the two would reduce duplication and improve efficiency.

The overhaul and expansion will give the bank more than 30 integrated business centres across the South-East. NAB is also converting 39 Clydesdale and Yorkshire sites in the Midlands and the North into similar centres by the end of the year.

The bank also plans to convert 50 Clydesdale and Yorkshire branches into flagship high street centres with extra services for retail customers.

The group intends to simplify and refresh its products and provide more banking back-up for small businesses, as well as to use third parties to distribute its mortgage products.