Fortis and An Post could each need to spend up to €200 million on their banking joint venture over the next few years, analysts suggested yesterday.

It emerged on Tuesday night that An Post had chosen to enter into exclusive talks with the Belgian/Dutch banking group about setting up a new banking business in the Republic.

Neither party would comment on the details of the planned joint venture yesterday, aside from confirming that talks would begin soon and expressing optimism at the development.

The move caught the attention of analysts however, with Rabo Securities choosing to lift Fortis's price target on the basis of continued growth at the group.

Rabo identified the Republic as an attractive market for life insurance in particular and said the link with An Post could require an investment of €100-€200 million on both sides over several years.

Other analysts wondered if Fortis could use the deal to test the Irish market with a view to taking over one of the domestic banking players in years to come.

The terms of the proposed relationship between An Post and Fortis have yet to be settled, with negotiations on these expected to last a number of months.

An Post said, however, that it expects the new financial services business to offer its first products "early next year".

The firm is known to be keen to compete in all areas of the sector, including savings, insurance and perhaps mortgages. The venture is likely to be targeted in particular at customers who are as yet "unbanked".

Fortis could be expected to rely on its decade-long experience in a joint venture with the Belgian Post Office in building an Irish operation. This Belgian business also offers telephone and internet banking.

It was unclear yesterday how the proposed new deal would affect An Post's existing banking relationship with AIB, which is said to have about a year to run. Few expect it to continue, however.

An Post would not comment on the matter, while a spokesman for AIB said only: "We work hard at it and it's a positive relationship."

The AIB deal is considerably more limited than the proposed joint venture with Fortis. It was equally unclear how An Post's insurance intermediary, One Direct, would emerge under the new structure.

An Post's move into large-scale financial services comes at a time of increasing competition in domestic banking, with the sector already absorbing Bank of Scotland (Ireland)'s increased presence as well as the forthcoming official relaunch of National Irish Bank under Danske's ownership.

"We see that there is still room for additional competition," said a Fortis spokesman yesterday. He added: "We consider Ireland as being a growing market."

Eamonn Hughes, an analyst with Goodbody Stockbrokers said Fortis would represent "another competitor, not just for the incumbents, but for new entrants". He pointed to Bank of Ireland's initial experience with its UK Post Office venture however, noting that it showed this type of market is "a difficult nut to crack".