IRISH LIFE & Permanent (ILP) plans to close its banking subsidiary in the Isle of Man by the end of the year due to the uneconomic cost of paying high deposit rates through the business.

The unit is being closed as the company focuses on restructuring and concentrating its activities in Ireland. “In common with all the Irish banks, we’re dealing with significant challenges in our home market and we’ve taken this step as part of our efforts to consolidate . . . resources on that core market,” said Permanent TSB chief executive David Guinane.

Irish Permanent (Isle of Man), which employs 14 staff, has more than £300 million (€353 million) in deposits. The company has operated the subsidiary since 1993.

IL&P plans to work with customers on transition arrangements while it winds down the operation.

Deposits in the Isle of Man will continue to be protected under the island’s depositors’ compensation scheme and the Irish Government bank guarantee scheme.

The closure of the business marks a change in direction by the company which said at its annual results in March that it planned to use the Isle of Man operations to continue to grow retail deposits.

Permanent TSB’s interest margins have been squeezed due to the cost of paying over the odds for deposits to improve funding.

IL&P needs to raise about €900 million, including €700 million by tapping shareholders in a rights issue, to meet new capital levels set by the Financial Regulator.

The company has said it is ready to participate in the restructuring of the banking sector once the bailed-out Irish banks secure approval for their viability plans from the European Commission.

IL&P is the only domestic financial institution which will not require a State capital injection and it is not participating in the National Asset Management Agency as it did not become involved in development lending. Shares in ILP remained flat at €2.04, valuing the company at €564 million.