The Belgian-owned KBC, which owns IIB Bank in the Republic, made informal contacts with First Active with regard to launching a takeover bid before Royal Bank of Scotland emerged with its €887 million offer this month.

The bank, which provides corporate and international banking services and mortgages through IIB Homeloans, was keen to expand its Irish business through the acquisition of First Active, which would have given it a branch network across the Republic.

Sources suggest that KBC did not expect to pay anywhere near the €887 million offered by Royal Bank of Scotland and would not consider launching a counter-bid.

No formal discussions were held but some initial soundings had been made and KBC had begun to build a shareholding in First Active as its legislative protection against a takeover elapsed last month.

First Active would have fitted in with KBC's plans to expand its presence in the Irish market. IIB Homeloans has been aggressively expanding its presence in the residential mortgage market.

The bank has estimated that it has 10 per cent of the new annual mortgage lending. First Active has about 12 per cent of the total residential mortgage market. Together the two businesses would have established the bank as a significant player in the Irish residential mortgage market.

If First Active had opted to accept a bid from KBC it would almost certainly have resulted in fewer redundancies, as there would be hardly any overlap in terms of the two businesses.

The €887 million offered by Royal Bank is considered to be a very full price. Royal Bank, which owns Ulster Bank in the Republic, has said there will be hundreds of job cuts as the two businesses are integrated. The bank intends to retain the First Active and Ulster Bank brands for the short-term at least.

First Active's board of directors has accepted Royal Bank's offer for the company and the deal must be approved by shareholders and regulatory authorities.

If approved it is expected to be completed in January 2004.

Royal Bank has said it entered negotiations with First Active shortly before the takeover was announced this month following a "social contact".

The bank's chief executive, Mr Fred Goodwin, also stated that it had looked at potentially buying either AIB or Bank of Ireland, but decided against it on the basis that it believed that such a deal would have run into problems with the competition authorities.